After a rocky few months in which President Joe Biden sometimes seemed captive of the progressive wing of his own party, he took a solid step back toward the center this week in renominating Jerome H. Powell as Federal Reserve chair.
The decision to retain Powell, a Republican, and appoint Democrat Lael Brainard, Powell’s chief rival for the top job, as vice chair, could refurbish Biden’s basic promise to make orderly government work again – despite the intensely partisan era. It was, as a senior White House official put it to me shortly after the announcement, “a very Joe Biden decision.”
Biden’s tweet announcing his choice had a pragmatic, down-the-middle tone: “America needs steady, independent, and effective leadership at the Federal Reserve.”
The senior White House official explained the Powell choice this way: “At a time of churn and unease about the economy, ‘stable and steady’ seemed like a good way to go – so keep Powell in his seat and keep Lael as the leading Democrat on the Fed.”
The Fed decision, this Biden insider continued, offered “a bipartisan set of picks to try to advance the idea that not everything in America should be a partisan throwdown.”
Powell isn’t perfect. He badly underestimated the inflationary impact of the more than $5 trillion in stimulus spending in 2020 and 2021 to deal with the pandemic. But he has demonstrated the two qualities most essential in a Fed chair: He creatively used the central bank’s powers to maintain liquidity in global financial markets during the first crisis months of covid-19; and he defied political pressure by then-President Donald Trump, who had appointed him in 2017, to cut interest rates to help Trump’s electoral prospects.
The noisiest clamor against Powell had come from the left, led by Sen. Elizabeth Warren, D-Mass., who called him a “dangerous man” in September and said she would oppose his renomination. Warren reiterated this week that she would vote against him. Biden talked with Republican senators before announcing the Powell choice, and presumably has enough votes to confirm him even if Warren defects.
Powell is a double-edged sword for the White House. He’s respected on Wall Street, and the benchmark Standard & Poor’s 500 index initially rose after news of his nomination, though it closed down slightly for the day. But in a second term at the Fed, he must check the inflationary pressures that built during his first term. That could lead to a gradual monetary tightening that by 2023 may slow the economy’s growth.
Former Treasury Secretary Lawrence H. Summers, who has been warning for months that inflationary pressures weren’t as “transitory” as Powell predicted, appeared content with Biden’s decision. “The institution is in good hands,” he said in a tweet.
Brainard, a former undersecretary of the Treasury for international affairs and a Fed governor since 2014, is respected by moderates and progressives alike.
Powell will guide monetary policy with his eye on the Fed’s core targets, employment and inflation. But he had assured Biden that he would be more attentive to climate change in making monetary policy, and that he would delegate broad supervisory powers to the person chosen as vice chair for supervision. Both moves will appeal to liberal Democrats.
Powell’s renomination is a rare setback for Warren in financial oversight since Biden’s election. She has helped place progressive allies in key sub-Cabinet and regulatory posts and derailed the chances of those she regarded as overly friendly to Wall Street.
For example, Biden initially favored Michael Barr, an aide to former Treasury Secretary Tim Geithner, as comptroller of the currency; when Warren and other progressives objected, Biden instead nominated Saule Omarova, a vocal critic of Wall Street whose confirmation is in jeopardy. Warren has also said she has “very serious problems” with Neil MacBride, Biden’s nominee for Treasury general counsel, who has represented Exxon and other corporate clients.
Biden’s Fed decision came after months of haggling with progressives over his $1.2 trillion infrastructure bill and his $1.9 trillion “Build Back Better” social spending bill. Protracted bickering over that package was accompanied by a sharp drop in Biden’s standing in the polls.
The White House insisted through the president’s months of travail that he would eventually get a win on both infrastructure and social spending. The Senate is yet to approve the second half of the package, but the Biden team argues that its plan for child care, elder care and preschool represents broadly popular, mainstream ideas – and can be financed by rolling back Trump tax cuts for the wealthy.
Biden’s standing with the public won’t be affected much, one way or another, by who runs the Federal Reserve.
But this week he seemed to recover a bit of authority to do what makes sense for the country, regardless of bickering on the left and right.
– Contact David Ignatius on Twitter @IgnatiusPost.