Cliff Owen/AP Photo
Federal Reserve Board Chairman Jerome Powell, left, and Vice Chair Randal Quarles participate in an open meeting in Washington, June 14, 2018.
President Biden met separately Thursday with Fed Chair Jerome Powell and the leading alternative candidate to succeed him, Fed governor Lael Brainard. A surprising development today, of which more in a moment, increases the odds that Powell will be reappointed.
The case for reappointing Powell is that he is a Republican who happens to be excellent on giving priority to full employment and gives Biden a lot of protection from pressure from inflation hawks. At his press conference last week, Powell deftly displayed how he finesses these minefields.
The case against Powell is that he has been bad on financial regulation, has been slipshod on ignoring conflict-of-interest rules in cases of his own investments, and that replacing him would give Biden a rare majority of progressive Democrats on the board of our central bank.
That last calculus has just changed. This morning, Fed governor Randy Quarles announced that he will leave the Fed by year-end.
Quarles, a Republican whose presidential designation as Fed vice chair for supervision expired at the end of October, had been keeping his options open as to whether he’d remain as a governor of the Fed, a term that continues through 2032.
With Quarles out, this sets off a domino effect, in which Biden will be able to name a majority of Fed governors even if he keeps Powell as chair. So Quarles’s move increases the odds that Biden will keep Powell.
Powell and Quarles are close. You wonder if Powell persuaded his friend Quarles to throw himself under the bus to save Powell’s own job. It would not take much persuading. As just another governor, rather than the powerful vice chair for supervision, Quarles would have a much less attractive post. He can make a lot more money on Wall Street. What was crucial for Powell, however, was Quarles’s timing—before Biden made his decision.
Biden’s new appointments to the Fed are expected to be a package. Besides Brainard, who will either succeed Powell or become a Fed vice chair, others prominently mentioned are former Fed governor Sarah Bloom Raskin and Michigan State economist Lisa Cook.
There is still a case for replacing Powell. Financial markets and financial writers are putting on a lot of pressure for rate hikes. Brainard as chair would be stronger at resisting that, as well as tougher on financial regulation. But the odds have now shifted to Powell.
