Democrats consider backing Jay Powell for Fed Leadership.

Democrats consider backing Jay Powell for Fed Leadership.

Brad Sherman is a California Democrat representing the House of Representatives. He was expressing what most in his party believe, when he asked President Joe Biden for Jay Powell to be reappointed as the Federal Reserve chair for a second term.

“I have lived through two crises economic in Congress, 2008 and 2020. Sherman said that 2020 was much more well-managed than 2008. It is good to reassure people in a time of high inflation and Covid.

At the minimum, Democrats allow Powell to continue for a fourth year after his current term expires in February. As the Biden administration continues to deliberate about key Fed appointments, this comes at a time when it is expected that there will be more.

Randal Quarles will be retiring as vice-chair of banking supervision in October. There is also one vacancy on board of governors. Biden and his economic team will need to solve these puzzle pieces. Janet Yellen (US treasury secretary) was asked Friday by CNBC if she would recommend Powell to him for a second term. She said that she would not have a “discussion” about it with Biden, but she was happy with Powell’s performance.

I have great respect for the Federal Reserve. It’s crucial for them to be able to independently decide what is appropriate. She said that she believed the Fed had done an excellent job.

Presidents of the United States have always considered renewal of Fed Chair posts a significant moment. However, even chiefs of central banks from opposite parties have been given the nod more than once. Ronald Reagan appointed Paul Volcker again, Bill Clinton extended the position of Alan Greenspan twice and Barack Obama selected Ben Bernanke to serve another term during the financial crisis. Donald Trump broke all precedent by elevating Powell, a Republican brought into the Fed by Obama to replace Janet Yellen’s term as Fed chief in early 2018,

Many Democrats, especially those on the left and progressive sides of the party believe that Biden should follow suit and place his firm stamp on US central bank leadership. They have not been able to pinpoint the faults in Powell’s leadership. He has led the Fed to a very accommodative and dovish approach to the pandemic and created a new policy framework which promises to delay pre-emptive rate rises and to pursue full employment better than ever before.

He also publicly supported strong fiscal responses to the coronavirus crises in 2020 and displayed more empathy for Fed chiefs than usual over the effects of central bank policies on everyday Americans. One criticism that Powell is subject to is from Democrats: he’s too soft on banks.

Sherrod Brown (Democratic chair of the Senate Banking Committee), said that the Fed had “rolled back important safeguards”, allowing the largest banks to increase the stock price and strengthen their economic power. This was during Thursday’s hearing. Brown is a prominent voice on Capitol Hill and has not asked for Powell’s replacement. Instead, the Senate voted to confirm Powell.

According to some Capitol Hill observers, the problem for left-leaning Democrats lies in whether Powell can be confirmed, and if he is as dovish or as supportive as current Fed Chair Powell, without distracting Congress’ main priority, which is pushing Biden’s $4tn remaining economic agenda.

“I don’t think there’s enough juice to fight over whether President Biden should nominate Powell, or if it should go elsewhere,” Meghan Pennington says. She was a Democratic aide to the Senate and is now at Hamilton Place Strategies in Washington.

A possible deal between the White House and progressive Democrats could see Powell keep his position as Fed Chair while Lael Brainard (a Fed Governor who is more strict on financial regulation) takes Quarles’ place as Vice-chair for Supervision.

Many Democrats want a person from color to fill the vacant seat. This will increase racial diversity at the Fed’s top ranks. Brown supports Lisa Cook (a Michigan State University professor). However, it will depend on Powell’s performance over the next months as he deals with the inflation surge and begins the tapering process that sees the Fed slow down its $120bn monthly asset purchase pace.

According to many market strategists, investors and economists, it is prudent that Biden offers Powell another term. Padhraic Garvey is the regional head for research in Americas for ING. He stated that regardless of your views on policy, stability will be what markets are looking for.

Roberto Perli is a former Fed employee and Head of Global Policy Research at Cornerstone Macro. He said that Powell’s reappointment was the “safer route”.

He said that markets, who are skeptical of the Fed’s new framework commitment, would doubt the potential of a new chair to guide the committee in the right direction. The result would be likely to higher interest rates.

Sherman dismissed the criticisms of Powell over regulatory grounds and said that things were going well in terms of “prudentialsolvency”. He stated, “The only thing that you can critique is the bank’s excessive money. And between getting angry at the banks’ excess money and worrying that they might be closed down or require a bailout, I’ll choose the former.”

Sherman, a House member will not be able to vote for the Fed chair. Sherman “suspects” Powell will be reappointed, but he is not betting on that. He warns his colleagues about negative political consequences in the next year’s midterm elections.

“Electing Democrats is the number one priority on our progressive agenda.” . . He said that economic uncertainty was not an effective way to do so.

Publiated at Sun, 18 July 2021 03:00:07 +0000

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