WASHINGTON: By picking Jerome Powell to stay on as chair of the powerful Federal Reserve, President Joe Biden is trying to navigate hazardous crosscurrents between economic and political forces.
Monday’s announcement frustrated a trio of liberal Democrats who see Powell as too weak on financial regulation and climate change. It drew praise from several Republican senators whose votes will be needed to get him confirmed in the evenly split Senate. But the underlying issue is whether the Feds often subtle messages and changes in interest rates can translate to a renewed sense of optimism by voters about the economy.
Biden’s goals are easy to describe but difficult to achieve.
He needs to tamp down inflation the rising prices that have Americans so upset but not so much that it suffocates a strong burst of hiring. He wants to forge bipartisan agreements, though not at the expense of his policy vision. He must put Democrats in the best position to compete in the 2022 midterm elections, yet his coalition is so diverse that it naturally invites infighting that can turn off voters.
Biden chose to nominate Powell to a second term in the belief that the 68-year-old’s political independence and experience during the pandemic will give Americans a sense of security. He balanced the choice politically by announcing that he wanted to elevate Fed Governor Lael Brainard to vice chair, a choice that could comfort some of the president’s progressive Democratic critics.
We need people with sound judgment and proven courage to preserve the independence of the Fed,” Biden said at the White House. “We need people of character and integrity who can be trusted to keep their focus on the right long-term goals for our country.
The president started with the questions of who he believed was best for the U.S. economy and who could get confirmed according to administration officials who spoke on condition of anonymity to discuss internal deliberations.
For a time, the pandemic had put the U.S. economy into the financial equivalent of a coma. Then unprecedented aid from both the Federal Reserve and congressional spending reawakened the economy, such that it made sense to Biden to go with someone with a track record in handling crises who also shared his policy goals of maximum employment and controlled inflation, the officials said.
Harvard University economist Jason Furman, who served as top economic adviser during Barack Obama’s presidency, said the political message in Powell’s pick was about continuity and bipartisanship and the importance of institutions.
Former President Donald Trump initially elevated Powell to Fed chair in 2018, but the president quickly turned spiteful and tried on Twitter and elsewhere to bully the Fed into cutting rates and juicing economic growth. Powell stood firm and exhibited an independence based on data that made him credible with Biden.
One really important thing about the renomination of Powell is that he has consistently demonstrated throughout the last four years that political pressures are not going to get to him, said Shai Akabas, who worked with Powell at the Bipartisan Policy Center, a public policy think tank.
At the pandemic’s outset, when the Trump administration seemed in denial about its economic consequences, Powell responded quickly by slashing interest rates and purchasing bonds.
The Fed has held rates at near-zero even after enactment of Biden’s $1.9 trillion coronavirus relief package. That choice ricocheted through the economy as the unemployment rate quickly fell to a healthy 4.6%, yet the extent of government support also amplified supply chain challenges and pushed inflation to a 31-year high. The Fed is expected to hike rates starting next year.
Biden was quick to emphasize on Monday that the strength of the economy should make it easier for the Fed to tackle inflation, which has become one of his top political vulnerabilities as Americans pay more for gasoline, autos, housing and other items.
Our economys doing well, because we have created so many new jobs as fast as we have, Biden said. We’re in a position to attack inflation from the position of strength, not weakness.
Within minutes of Mondays announcement, Sen. Pat Toomey of Pennsylvania, the ranking Republican on the Banking Committee, signaled his support of Powell despite disagreeing with him over the importance of raising rates sooner. North Dakota Republican Kevin Cramer, also on the Senate Banking Committee, endorsed Powell by saying that stability and consistency are in the best interests of the American economy.
Biden will need Republican backing because he faces dissent among Democrats over Powell from some who see him as lax on regulatory issues, the economic threats from climate change and the policing of Fed officials’ stock and bond portfolios.
Massachusetts Sen. Elizabeth Warren tweeted that she will oppose Powell because of what she deems are failures on regulation, climate, and ethics. Sens. Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon issued a joint statement against Powell under the argument that the Fed should do more to protect against and adapt to the economic havoc coming from climate change.
Yet for all the economic power concentrated at the Fed and White House, Biden’s fate will ultimately depend upon the individual choices of businesses and consumers who determine the direction of the U.S. economy. Their hopes, fears and choices will be critical as to whether the solid growth out of the pandemic is sustained and whether inflation returns closer to the Fed’s 2% annual target.
The outcomes of the 2022 and 2024 elections also will depend on the broader marketplace of ideas. Will strong growth help Democrats? Will cultural issues motivate people more? It is, for Biden, yet another balancing act with the public.
The economy is not run by the president,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities. “Its average, everyday Americans who make the economy run.
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EDITOR’S NOTE: Josh Boak has covered the economy, government and politics for The Associated Press since 2013.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor
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