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WASHINGTON: America’s monetary policy will not be a primary concern for President-elect Joe Biden as he prepares to take office in January, with the Federal Reserve’s economic arsenal already deployed against an ongoing recession and spending decisions. most urgent federal. for the next administration.
But during his first year in office, Biden will have to decide how deep a mark he wants to leave on the US central bank.And, in particular, whether the push from Fed Chairman Jerome Powell this year to refocus him on job growth has gained enough credibility among Democrats to be. re-elected.
Among the considerations the incoming Democratic president will have to weigh are calls by progressives for a more extensive change at the Fed, given that the party’s platform included reforms to make the Fed more vigilant on issues such as wealth inequality. racial and if Powell is right. figure to chase that.
Opposition to Powell may also come from those who want stricter financial regulation. Democratic US Senator Elizabeth Warren, now a key voice on financial regulation issues, opposed his nomination in 2018.
While balancing the various demands of those who brought him to office, Biden may want to put his own stamp on the central bank when Powell’s term as Fed chief ends in February 2022, said Vincent Reinhart, a former Fed official who now it’s Mellon. chief economist, highlighting the broad group of experts on economic policy of the Democrats.
Among them, current Fed Governor Lael Brainard has been mentioned as a possibility to replace Powell or become the next US Treasury Secretary; Atlanta Fed Chairman Raphael Bostic, the first black man to head one of the Fed’s regional branches, has become an influential voice within the Fed system on economic equity issues, and during the Biden years as vice president he was undersecretary of the Department of Housing and Urban Development.
NOMINEE OF LESS RESISTANCE
Still, Powell won’t run out of strengths when the topic of his future comes up. It has been a firm hand on the central bank, not only achieving a forceful response from the Fed to the coronavirus pandemic, but surviving a tumultuous relationship with Republican President Donald Trump, in part by generating support among Democrats and Republicans in The congress.
If Republicans maintain control of the Senate, and therefore over the confirmation of Biden’s appointees, those alliances could be an advantage for Powell, a 67-year-old Republican cut from the same moderate bipartisan cloth as the president-elect, and a good reputation. well-known figure in institutional Washington. Two runoff elections in Georgia in January will determine which party controls the Senate.
Powell “would be the candidate of least resistance” if Republicans maintain control of the Senate, Cornerstone Macro analyst Roberto Perli recently wrote.
Even beyond those dynamics, Powell has carried out what is arguably one of the most important reforms of US monetary policy since former Fed chief Paul Volcker redirected the central bank in the late 1990s. 1970s and early 1980s to combat inflation. In Powell’s case, it involved recasting the Fed as a jobs promoter first and an inflation fighter second.
The launch of the new Fed framework received praise from progressive economists, union leaders and others over the summer, including Biden’s top economic adviser Jared Bernstein, who called the new approach “music to my ears.”
APPOINTMENTS OF VICE PRESIDENTS
The terms of the Fed’s two vice presidents, Richard Clarida and Randal Quarles, will also expire during Biden’s first year. Clarida is a respected economist who made the change in Fed policy during a nearly two-year review. Quarles, as the Fed’s vice president of supervision, may be the least likely of the three to be asked to remain if the Biden administration pursues the stricter supervision that Warren and others seek.
Trump has two appointments to the seven-member Fed board of governors pending before the Senate, but it is unclear whether they will be confirmed in the duckling session that ends in early January when a new Congress is convened. If not, then Biden would have those vacancies to fill as well.
Beyond personnel, Biden will face choices about whether the Fed should incorporate criteria such as racial wealth and employment outcomes into its analysis, something that Powell and other lawmakers like Bostic have moved toward on their own.
In an email supporting the Fed’s new framework, Bernstein said he still felt that the changes to the Federal Reserve Act were justified “for when someone with Powell’s sensibilities is not leading the show.”
Changes to the Fed’s governing statute would be less likely with a Republican-controlled Senate, a restriction that may affect many of Biden’s ambitions.
EMERGENCY PROGRAMS
And there may be a short-term issue with the Fed that Biden must address.
Many of the emergency loan facilities that the central bank established this year to combat the current crisis will expire on December 31, and any reauthorization would require approval from the outgoing Trump administration.
Fed officials feel those programs have helped markets operate normally during a historic recession, and if Trump refuses to approve their extension, it could be a source of trouble for at least weeks until Biden takes office. .
In a press conference held last week before Biden’s victory in the Nov. 3 election became clear, Powell said the Fed was “just coming back to this issue now and we haven’t made any decisions” on whether the economy it is ready to do without the emergency. measures credited with stopping a full-blown financial crisis last spring.
(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)
