Biden crosses liberals to renominate Powell as Fed chairman, keeping a crisis-tested veteran to tackle inflation

Federal Reserve System chairman Jerome Powell.Nate Palmer/NYT

WASHINGTON — Senator Elizabeth Warren and other leading progressives have received a lot of love from President Biden on policies and appointments, but he crossed them in a major way on Monday by announcing he would nominate Jerome Powell for another term as head of the Federal Reserve.

Warren and several other high-profile Democrats, including Representatives Ayanna Pressley and Alexandria Ocasio-Cortez, publicly opposed giving Powell four more years as chairman of the central bank’s board of governors, arguing he had been too lax on financial regulation and failed to do enough to prevent economic damage from climate change. But Biden chose to nominate him anyway, opting to keep a crisis-tested veteran at the Fed’s helm as it tries to reduce high inflation without derailing the economic recovery from the pandemic.

Most Democrats support Powell and he’s expected to win Senate confirmation because broad Republican support will offset defections by some progressive Democrats.

“Why am I not picking fresh blood or taking the Fed in a different direction?” Biden said Monday as he addressed progressive concerns about Powell, a Republican who was first appointed to the Fed by Barack Obama and elevated to chairman by Donald Trump. “Put directly, at this moment of both enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve.”

Biden tried to appease progressives by also announcing Monday that he would nominate Lael Brainard, the only Democrat on the Fed’s board, to be vice chairwoman, a promotion that would enhance her influence on monetary policy and regulation. But that wasn’t good enough for Warren, who in September called Powell “dangerous” because of his regulatory stance. She later hammered Powell for ignoring what she called a “culture of corruption” at the Fed over financial trading by top officials, including Eric Rosengren, the president of the Federal Reserve Bank of Boston, who retired this fall in the wake of the controversy.

“It’s no secret I oppose Chair Jerome Powell’s renomination, and I will vote against him,” Warren said in a written statement Monday. Two other Senate Democrats, Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon, also said last week they opposed Powell’s renomination. Warren and Merkley voted against Powell’s confirmation as Fed chair in 2018, two of the 13 senators — including four Republicans — who opposed him then.

While she said she supports Brainard, Warren added that “Powell’s failures on regulation, climate, and ethics” made it crucial for Biden to quickly nominate “a strong regulator” to a second Fed vice chair position, currently vacant, focused on supervising financial firms. The slot is one of three seats coming open on the Fed’s seven-member board in the coming weeks, giving Biden an opportunity to put his stamp on the independent central bank’s leadership.

But the most influential job is chair and after months of deliberation, Biden decided to stick with Powell, a lawyer and former investment banker who served as a Treasury official under President George H.W. Bush.

Unlike most Fed leaders, Powell is not an economist. But he’s earned wide support across party lines for his extensive financial experience, clear communication, and ability to withstand sharp criticism from the left and right. Trump quickly turned on him in 2018 as the central bank began slowly raising interest rates as the economy improved, unleashing unprecedented public criticism of a Fed chair by a president.

Senator Patrick Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, said Monday he supported Powell’s nomination despite concerns that the Fed has been too slow in removing emergency monetary policy measures that were put in place to deal with the pandemic. Powell has also been criticized for not acting more quickly on rising inflation this year, asserting as the White House did that the increased prices would be temporary.

Inflation, however, has proven to be more persistent and the annual rate by one government measure in October jumped to its highest level in three decades. The Fed is mandated by law to promote maximum employment and stable prices, and its apparent misread of inflation might have given pause to Biden on Powell’s re-nomination, said Greg Valliere, chief US policy strategist for AGF, an asset management firm in Toronto.

But despite those concerns, Biden decided that Powell was a safer bet on the economy than naming a new chair — some liberals had pushed for Brainard — a move that could have unsettled financial markets, said Valliere, a longtime Washington analyst of the Fed and economic policy.

“I think Biden probably felt the last thing he needs right now is a grouchy stock market, and the market could have been displeased if the pick had not been Powell,” Valliere said. Major stock indices reacted positively to the news Monday morning.

Powell pledged on Monday to deal with inflation while saying other priorities included “vigilantly guarding the resilience and stability of the financial system” and “addressing evolving risks from climate change.”

“The unprecedented reopening of the economy, along with continuing effects of the pandemic, led to supply and demand imbalances, bottlenecks and a burst of inflation,” Powell said after Biden announced the nominations. “We know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials, like food, housing, and transportation.”

The Fed has a difficult task in the coming months in trying to pull back economic stimulus to reduce inflation without moving so quickly that job and economic growth is slowed, said Diane Swonk, chief economist at the accounting and advisory firm Grant Thornton.

“You don’t want a knee-jerk reaction. You want a pirouette. That’s a harder thing to accomplish,” Swonk said of Fed monetary policy under Powell. “I don’t want to say he’s been behind the curve, but he’s been underestimating inflation and so has the Fed. That’s, something that a lot of people did.”

Although inflation has jumped on Powell’s watch, progressives generally don’t have problems with him on the economy. In a public letter this summer raising concerns about his leadership, Pressley, Ocasio-Cortez, and three other progressive House Democrats said they thought the Fed “has made positive changes to its approach to full employment.” Nonetheless, they urged Biden to nominate a new Fed chair because they said Powell had taken “very little action to mitigate the risk climate change poses to our financial system” and had weakened regulatory reforms enacted after the 2008 financial crisis.

Progressives have been happy with most of Biden’s picks for financial regulators, including Gary Gensler as chairman of the Securities and Exchange Commission, Rohit Chopra, a Warren ally, to be director of the Consumer Financial Protection Bureau, and regulatory scholar Saule Omarova to be Comptroller of the Currency. Gensler and Chopra were narrowly confirmed, while Omarova’s nomination is pending and under fire from Republicans.

But in renominating Powell, Biden placed economic policy over regulation and picked someone expected to easily be confirmed, said Valliere.

“It looks to me as if Biden has other regulators who will be pretty tough on financial regulations,” Valliere said.