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Powell Renominated for Fed Chair But Biden Will Reshape the Fed to His Liking

Biden renominates Jerome Powell as Fed Chair but the shape of the Fed changes.
Author:
Fed Governor Lael Brainard

As widely expected, Biden Will Tap Jerome Powell for Second Term as Fed Chairman.

President Biden is set to nominate Federal Reserve Chairman Jerome Powell to a second term leading the central bank, the White House said Monday, opting for continuity in U.S. economic policy despite pushback from some Democrats who wanted someone tougher on bank regulations and climate change.

Mr. Biden will also nominate Fed governor Lael Brainard as vice chair of the central bank’s board of governors, the White House said.

Mr. Biden can put his stamp on the central bank with three additional appointments. There is already one vacancy on the Fed’s seven-member board of governors, and Fed Vice Chairman Richard Clarida’s term as governor will expire in January. The four-year term of the vice chair of bank supervision, previously held by current Fed governor Randal Quarles, expired in October and he plans to retire around the end of the year. Mr. Biden will announce those appointments in early December, the White House said Monday.

The Battle 

Ms. Warren told Mr. Powell at a Sept. 28 hearing that she would oppose his nomination because of the Fed’s record of reducing regulations on banks in recent years. “That makes you a dangerous man to head up the Fed,” she said. Later, she cited the questionable trading activities by Fed insiders as a sign of failed leadership by Mr. Powell.

Other Democrats expressed concern that progressives’ priorities might further yoke the Fed to broader partisan warfare that the institution has largely avoided. They worried such moves could undermine its effectiveness on a new monetary policy strategy that has placed new emphasis on tighter labor markets.

“It makes me very, very uneasy if we’re going to appoint somebody…to move the Fed and lose its independence,” said Montana Sen. Jon Tester, a moderate Democrat who in September strongly backed Mr. Powell’s appointment.

The Compromise

Elevating Ms. Brainard to vice chair represents a compromise of sorts between the two camps. The vice chair of the board, together with the New York Fed president, traditionally serve as the Fed chair’s top lieutenants in designing monetary policy. Ms. Brainard could take over as vice chair next February.

This fits the scenario I outlined yesterday in Biden's Has Twice Delayed His Fed Chair Nomination, What's Going On?

Progressives want Brainard, but does Biden? I suggest yes, but other forces are in play.

The key force in play was Biden could not come up with 50 votes for Brainard despite lots of arm twisting that led to delays in the announcement. 

I concluded 

Brainard will fall short of the needed 50 votes. I expect this to be evidenced upfront by a Powell nomination. We need to reassess if Biden does nominate Brainard.

If Biden nominates Powell for Chair, expect Brainard to become vice chair for supervision replacing Randal Quarles, a Trump appointment. Quarles term expired in October.

The vice chair of supervision is the Fed’s top banking cop. 

Progressives want more regulation and and they want more climate change activism from the Fed.

Fed to Turn Markedly Left

One way or another, Progressives rate to get their wishes for more regulation as well as more climate activism.

Look for the supposedly independent Fed to turn markedly Left.

That appears to be nearly spot on. Instead of vice chair for supervision Brainard will be vice chair, a higher position. 

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That means the vice chair of supervision will go to a pick that Elizabeth Warren will choose.

The Troika

Recall that former Fed Chair Ben Bernanke commented "Only three opinions matter, the Fed Chair, vice Chair, and President of the New York Fed."

When it comes to banking regulation, we need to add vice chair of bank supervision.

Biden has will have named three of these four slots but Powell is a holdover.

Is everyone happy? 

Mish for President of the Dallas Fed

In case you missed it, there is an opening for President of the Dallas Fed. 

I sent in my resume with a pledge to fire nearly the entire staff except for those working on plans to end the Fed entirely.

Mish for President of the Dallas Fed

Please go to the Dallas Fed FAQ, look for the Orange Box "Apply or Submit a Candidate" and give them my name.

You can also Email them directly at dallasfedsearch@egonzehnder.com. The subject line should read Dallas Fed Presidential Search.

Thank you for your support. I look forward to serving you as president of the Dallas Fed.

My position will indeed be transitory. I pledge to fire myself within two years while accepting no pay in the interim. 

Addendum

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