Janet Yellen has dedicated most of her professional life to the Federal Reserve. She served in its highest-ranking roles, including as president of the Federal Reserve Bank of San Francisco, on its Washington-based board and as the central bank’s first female chair. When then-President Donald Trump decided to replace her in that role in 2017, she was sorely disappointed.
Now, as Treasury secretary, Yellen is getting another chance to shape the future of the institution. She will be a critical voice in deciding who ought to lead the central bank in what some see as a once-in-a-generation opportunity to remake an institution that shepherds the United States’ economy and helps to regulate its largest banks.
Jerome Powell’s term as chair, which began in 2018 after Trump picked him to take over for Yellen, ends in February. Slots for the vice chair and the Fed’s top bank regulator will also be up for grabs soon, and a position on the Fed’s Board of Governors is already vacant. Assuming officials leave once their leadership terms end, the Biden administration may, in quick succession, be able to appoint four of the Fed’s seven board members, powerful policymakers who have constant votes on monetary decisions and exclusive regulatory authorities.
Many progressive Democrats are pushing to oust the moderate Powell and replace him with a candidate who is focused on tight financial regulation, climate change, and digital money — most likely Lael Brainard, a member of the Fed’s board of governors. Powell’s supporters see him as a champion for full employment, and would like to see him retained as a sign that competent leadership is rewarded.
It’s unclear where Yellen’s preferences lie, but it’s common knowledge that she was unhappy when Trump broke a tradition of reappointment in her case.
Many who would like to see Powell replaced play down the role she will have in shaping President Biden’s decision. But Treasury secretaries have traditionally been central to the Fed selection process, helping to advise and guide the president toward a choice that will be welcome on both Wall Street and in the Senate, which has to confirm nominees to the Fed board.
Yellen’s views will carry significant weight in the deliberations, coloring both who is considered and the ultimate outcome. Discussions over the pick are also ongoing among Brian Deese, director of the National Economic Council; Ron Klain, the president’s chief of staff; and Cecilia Rouse, chair of the Council of Economic Advisers, according to people familiar with the deliberations. Biden will have the final word.
Conversations over who should lead the institution could stretch into October, as they have in past Fed leadership decisions. But speculation over who will win the top jobs is already rampant.
The Treasury Department declined to comment.
The argument for replacing Powell, a Republican who was appointed as a Fed governor by President Barack Obama and elevated to chair by Trump, has to do with things other than traditional interest rate policy. Democrats typically say he has done a relatively good job when it comes to guiding the economy using monetary tools.
Under his leadership, the Fed parried Trump’s pressure campaign to lower rates at a time when the economic backdrop was solid, and it reacted rapidly and effectively to the economic collapse triggered by the pandemic. The Fed is also credited with averting a financial crisis early last year as key markets seized. Powell’s Fed revamped its entire policy framework last year to focus more concertedly on achieving a strong job market that extends its benefits to as many people as possible.
Yellen has repeatedly praised Powell’s performance.
“He’s doing extremely well,” she told The New York Times in early 2020, discussing Powell’s conduct as he came under attack from the Trump White House.
But Powell has opponents among more progressive groups. He often deferred to the Fed’s vice chair for supervision — a Trump appointee — when it came to regulation, regularly voting for tweaks to bank and financial rules that chipped quietly away at post-crisis financial reforms. He has also been criticized by climate-focused groups for being too slow to elevate the Fed’s role in policing environment-related finance. Climate activists plan to protest at the Fed’s annual symposium in Jackson Hole, Wyo., this year, and Powell “will be a key target,” Thanu Yakupitiyage, head of US communications at 350.org, said in an e-mail. The group is one of the protest’s key organizers.
Regulation and climate are key reasons some Democrats are lining up behind Brainard, the Fed governor and another leading candidate. Brainard, who also has a good relationship with Yellen, opposed Trump administration efforts to lighten bank oversight by loudly dissenting against a spate of regulatory decisions, often releasing meticulous statements detailing where they went awry.
She is seen as a powerful and effective Fed governor, one who played a key role in shaping pandemic response programs. And while they are closely aligned on monetary policy, she has distinguished herself from Powell by pushing for a bigger role for the Fed on climate issues and a more proactive stance toward developing a digital currency.
She also could help to anchor a leadership team that could usher in a fresh era for the Fed, her supporters argue.