Jerome Powell’s case for reappointment is straight or dirty depending chiefly on one’s politics. His pursuit of employment and inflation objectives may contain mistakes but not malfeasance. After the 2008 crisis, some Republicans fomented disrepute toward the central bank. Now it is some Democrats’ turn to express displeasure. In both instances, politicians dislike(d) the bank’s independence and formidable power outside their material reach rather than any personal motivation behind policy setting.
Stepping away from that not-so-happy hour, it’s clear that many elected politicians just plain envy the Fed’s ability to act massively, relatively quickly and without a moment of pre-consultation on major policy. We agree its history is replete with bias or insensitivity to blocks of Americans, but the 1913 dual-mandate charter means any lawmaker or collection thereof are powerless to effect meaningful change without 218 House and 60 Senate votes.
The current political jousting continues this bipartisan tradition. Republicans are speaking past Democrats, including President Biden, when voicing support for Powell. As was very evident yesterday morning, Senator Elizabeth Warren’s attack was a monologue not intended to persuade congressional members of anything; it was an example of common marketing to political factions without Hill voting privileges.
The Fed isn’t being tested for substantive apolitical reasons. We’ve long thought that political risk to Powell’s renomination mattered only within the White House. President Biden’s support today for Powell is an unmistakable signal. We expect Biden’s staff believes the Federal Reserve Board inspector general review will not unearth behavior worthy of changes to Board leadership. Chair Powell seems destined for reappoint and Governor Lael Brainard very likely is in line for the financial stability vice chair seat.
Coincidence bemuses at times. The day after Senator Warren renewed a request for the SEC to investigate the personal trading accounts of Board members, the Senate Homeland Security Committee is set to markup legislation to strengthen IG independence. There is no role for the SEC to review independent policymakers’ trades unless a crime is uncovered by the Fed IG. Government IGs have broad, apolitical (most often) oversight authorities over the agencies at which they serve. Senate Homeland Security Chairman Gary Peters and others in Congress believe those functions need further protection not erosion.
Although institutional biases and jealousies often are at play in Washington, those frailties should not always be perceived solely through a political lens. Our presumption is that the president would not choose today to publicly back Powell unless he’s been reassured doing so wouldn’t come back to haunt him. If we are right, then Fed board uncertainty does not deserve carriage on the 4Q21 escalator of angst.
