Why Everyone in Washington is Talking About Jerome Powell
Congress has a packed fall “to do” list — appropriations, debt ceiling, and infrastructure among the most immediate priorities — but it is an early 2022 deadline that has some federal lawmakers and pundits feeling the late summer heat.
Federal Reserve Chair Jerome Powell’s four-year term as chair ends in February 2022. While former Federal Reserve Chair and current U.S. Treasury Secretary Janet Yellen has recommended that President Joe Biden re-nominate Powell, Powell does have a bipartisan list of detractors in Congress. Which is why, according to Bloomberg, “the White House has been casting a wide net for possible [other] candidates” and “advisers have been examining the public speeches and comments of potential contenders to consider, paying special attention to views on the labor market.” As a reminder, whether Biden nominates Powell for a second term or chooses someone new, a majority of senators will need to vote to confirm.
Is the chorus loud enough yet for President Biden to dump Powell in favor of another nominee? Let’s take a look.
Who Is Jerome Powell and What Does He Do?
Jerome Powell is the 16th chair of the Federal Reserve Board. Investopedia has summarized the role of the Fed chair. In his capacity, Powell:
Is the most visible executive officer at the Federal Reserve Board;
Provides leadership and executes the mandate of the central bank, pushing for maximum employment, stable prices, and long-term interest rates that fall “in the moderate range”;
Testifies before Congress twice a year on issues that include Fed monetary policy and other policy objectives; and
Chairs the Federal Open Markets Committee (FOMC), which is responsible for determining short-term U.S. monetary policy.
Powell was born in Washington, D.C. He went to Princeton for his undergraduate degree and to Georgetown University’s school of law. After working for several years in investment banking, he became assistant secretary and then undersecretary of the Treasury for finance, under former President George H. W. Bush. After the first Bush administration, Powell went back to investment banking.
Powell was first appointed to the Fed board in 2011 by former President Barack Obama. In 2014, arguing that Powell “has proven to be an effective and wise voice at the Fed,” President Obama reappointed him to a second term that would end January 31, 2028. (As the Congressional Research Service has explained, Fed governors serve nonrenewable 14-year terms, but the chair and vice-chairs serve renewable four-year terms. Powell’s term as chair is what expires in 2022, not his term on the board.)
In early 2017, Powell was appointed to head the Fed’s oversight of the largest U.S. banks and in late 2017, he was nominated by former President Donald Trump to chair the Federal Reserve. The Senate approved his nomination on a bipartisan 84-13 vote.
Despite that early support, Powell had an uneasy relationship with President Trump. As CNN explained, former President Trump “repeatedly criticized Powell for continuing to tighten monetary policy, saying on Twitter that it was the ‘only problem’ with the economy.” The former commander in chief also asked advisers whether he could “fire” Powell. During the turmoil, Powell said he would not resign if pressured to do so by Trump.
One sticking point for President Trump was the Fed’s handling of the economic fallout from the COVID-19 pandemic.
As the Congressional Research Service explained, the COVID-19-related programs authorized by Congress that the Fed carried out were less than successful. While “the Fed swiftly lowered interest rates to zero,” the Main Street Lending Program and Municipal Liquidity Facility, meant to provide financial support to larger businesses, were underutilized and shut down at the end of 2020.
Powell is a Republican. While that fact alone could sink his re-nomination in today’s climate, so far, few Democrats actually have been willing to come out publicly against another Powell term. Those who have, however, recently increased their efforts to convince the White House to remove Powell.
Democratic and Progressive Opposition to Jerome Powell
This week, a handful of House Democrats came out against Powell re-nomination. As Politico explained, House Financial Services Committee members Reps. Alexandria Ocasio-Cortez (D-N.Y.), Rashida Tlaib (D-Mich.) and Ayanna Pressley (D-Mass.), along with Reps. Chuy Garcia (D-Ill.) and Mondaire Jones (D-N.J.), released a statement calling for Powell to be replaced. While the House doesn’t get a formal vote on Federal Reserve nominees, the House Financial Services Committee provides oversight of the Fed, so these lawmakers’ opinions carry weight.
The lawmakers said, “Under his leadership, the Federal Reserve has taken very little action to mitigate the risk climate change poses to our financial system” and argued “we need a leader at the helm that will take bold and decisive action to eliminate climate risk.”
The lawmakers also criticized Fed moves over the last several years to reduce regulations on larger banks.
As Politico noted, the lawmakers released their statement after 22 progressive groups called on President Biden “to pick Federal Reserve leaders who will shift the central bank’s approach” to climate change and labor issues.
According to The Hill, the Revolving Door Project, an organization that “scrutinizes executive branch appointees to ensure they use their office to serve the broad public interest, rather than to entrench corporate power” has “raised questions about [Powell’s] true commitment to full employment.” Specifically, “The group has criticized Powell for refusing to loosen the terms of the Fed’s emergency lending facility for state and local governments in ways that would have helped cities with weaker credit ratings reap greater benefits, but adjusting a business lending facility to help cover the fossil fuel sector.”
While influential senators like Banking Committee Chair Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass.) have criticized Powell in the past, they have not yet said if they would support another Powell term.
The support of these two lawmakers will be necessary to get a Powell re-nomination through the Senate, just as their support has been in the past. As a separate Politico article reminded readers this morning, when former Treasury Secretary Larry Summers was the favorite to be nominated as Fed chair by President Obama in 2013, Sens. Brown and Warren “led a successful effort to push for Janet Yellen instead.”
Republican Opposition to Jerome Powell
While Powell has received criticism from Democrats for not doing enough about climate change, some Republican lawmakers think he has done too much. As the Seattle Times explained, “The Powell Fed has established new committees for addressing the threats that climate change poses to the financial system.”
That action has the GOP nervous. As a result, Republican members of Congress have “warned [the Fed] against taking any action to stifle the flow of funds to carbon-producing companies.”
Republicans also have voiced growing concerns about inflation. At a Senate Banking Committee hearing in July, Ranking Member Pat Toomey (R-Penn.) said, “The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder. Inflation is here, and it’s more severe than most — including the Fed itself — expected.” Powell was sitting before the committee at the time. Ranking Member Toomey asked him, “Since the Fed has proven unable to forecast the level of inflation, why should we be confident that the Fed can forecast the duration of inflation?”
Harsh words, but for GOP opposition seems relatively limited. In contrast to Sen. Toomey, House Financial Services Committee Ranking Member Patrick McHenry (R-N.C.) has spoken out in favor a second Powell term.
Will that support hold?
According to Politico, Republicans are beginning to put pressure on Powell to pump the breaks on its COVID-related economic stimulus. Powell signaled in the last week that he is ready to do so, but if he thinks twice, we could start to see additional grumbling from the GOP.
A Busy 2022 for Fed Nominations
Powell’s chair seat is not the only Fed nomination that the White House and Congress will have to contend with next year. As NBC News explained in July, “Vice President for Supervision Randal Quarles’ term in that position ends next year. He would still be on the Fed’s Board of Governors, but there is speculation that he would be likely to depart rather than remain after his former role goes to someone else.” Additionally, Fed member Richard Clarida’s term ends next year and “there is a current vacancy on the board, due to the inability of Trump nominees Stephen Moore and Judy Shelton to garner enough Senate support to be appointed.”
According to Bloomberg, President Biden could announce his decision on Powell’s re-nomination as soon as Labor Day weekend. That could set off a debate that outlasts anything we will see on the debt ceiling or infrastructure.