Susan Walsh/AP Photo
Federal Reserve Chair Jerome Powell speaks after President Joe Biden announced Powell’s nomination for a second four-year term, in the South Court Auditorium of the White House complex, November 22, 2021.
Biden’s carefully considered decision to reappoint Jay Powell to chair the Fed for four more years, with Lael Brainard elevated to vice chair, was the safer course. Powell will now be confirmed overwhelmingly, and Biden will have a Republican Fed chair firmly committed to resisting the call for a premature hike in interest rates based on a mistaken diagnosis of what is really supply-shock inflation.
But the progressive community’s campaign to have Biden replace Powell with Brainard will still bear fruit. Biden has three other Fed seats to fill, and with Powell staying as chair there is now even greater assurance that he will fill the other slots with progressives, who are also likely to be women and people of color.
Three leading candidates are former Fed governor (and former deputy Treasury secretary) Sarah Bloom Raskin to be vice chair for supervision, Michigan State economist Lisa Cook, and AFL-CIO chief economist and Howard University professor Bill Spriggs. The latter two are African American. This lineup would produce the most progressive and diverse Federal Reserve ever.
It would also leave Powell on the short side of a 4-3 majority of Fed governors who are far more committed to tough banking supervision and regulation than he is, as well as an even more solid majority against needless tightening of monetary policy. For the moment, there is just one Democrat on the Fed board. There will soon be four.
Normally, the Fed chair runs the place and calls the shots, but not if he is at risk of being outvoted. In 1987, the Fed was debating whether to weaken the Glass-Steagall wall between commercial and investment banking by allowing commercial banks to underwrite several categories of bonds. The powerful chair, Paul Volcker, was a monetary conservative, but he knew his history and was opposed to any weakening of Glass-Steagall.
Volcker lost that battle, in a 3-to-2 vote. A Fed chair cannot function when he loses control of his board, so Volcker, at just 58, resigned from the Fed, with six years of his term remaining.
Powell remains as Fed chair for now, but he will be presiding over a transformed institution.
