Picking Powell for Stability
Terry H. Schwadron
Nov. 24, 2021
Picking Jerome Powell to keep his job as head of the Federal Reserve is not going to win Joe Biden any Profile in Courage notice.
The consensus judgment is that retaining Powell is a safely moderate choice, politically and economic,soothing to financial markets and signaling continuity on the slow improvements seen worldwide. Biden tapped the more progressives-acceptable Lael Brainard as vice chair.
It is a choice likely to draw some Republican support in the Senate, which must approve the choice even if progressives like Sen. Elizabeth Warren, D-Mass., keeps her word to vote against the nomination — thus eliminating further dissension over another nomination.
By picking Powell — first appointed by Donald Trump — the president may be solving one problem in favoring Stability for markets and national, state and global economies. Biden is accepting a longer view over the immediate, which is either good or bad, depending on your point of view, and an approach that has allowed banks and financial institutions to continue to fund a spreading gap in the effects of economic policies.
But Biden also is saying quite clearly that he accepts that the responsibility to solve pressing current concerns about rising prices belongs with him, not the Fed.
The supply chain blockages, the suddenly high cost of gas and food, the weirdness of rising jobs amidst employer concerns about finding enough immediate workers all are both symptoms of covid on the economy and immediate sore points among voters.
So, Biden’s pick in the long-term and his backing for big spending bills to force better conditions in years to come, still leaves him vulnerable to criticisms about addressing the here and now of the prices of goods and services.
Biden’s Deliberate Pace
Biden’s deliberateness in making the choice to lead the Fed is mirrored in various considered moves about inflated prices — and most other moves to set a direction.
The Biden argument is that thinking it through should allow even recalcitrant opponents in either party the room to agree, negotiate or suggest alternatives more acceptable to them. That has bequeathed us the constant hammering between the most conservative and the most liberal Democrats, all of whose votes are needed in the Senate, and more pronounced opposition by Republicans with or without any program other than blocking Biden.
Specifically, deliberateness has allowed opponents space, including the right-learning media sites, to continue to bang away at perceived inaction.
Still, there are signs that Biden does want to act, in the Biden-esque way.
To reduce gas prices, for example, the White House has identified the problem both as global supply and local price-gouging.
Biden is ordering the release of 50 million barrels of crude oil from the nation’s strategic reserve, built up under Donald Trump, when prices were lower. Biden could have ordered this a month ago, but he delayed any move until it had been coordinated with similar moves by Britain, China, India, Japan, and South Korea, which also have found the OPEC oil-producing nations to be laggard at meeting current supply. That increases the power of the move, of course.
In the U.S., the plan is to restore most of that oil reserve when prices fall.
And Biden has launched a federal agency review of oil prices in the U.S. to explore whether prices are being artificially raised in the delivery chain to local gas stations.
Doing so is as much a matter of politics as it is energy sanity, since polls and recent votes have made it clear that rising prices are more popularly seen as a gauge of “how Biden is handling the economy” than bank interest rates, the performance of financial markets, jobs, or long-term plans to address health costs, education costs, childcare, or income inequality.
The Fed Choice
In that light, the deliberateness has been a backstage debate pitting Stability against policy that is more interventionist about inflation and about bank regulations as promoted by Warren. She sees banks as pursuing policies that generally favor the wealthy and themselves over any commitment to widening lending, ignoring climate, and policies towards reducing the gap.
In truth, as David Ignatius of The Washington Post notes, Biden’s standing with the public won’t be affected much, one way or another, by who runs the Federal Reserve. His was a deliberate move for policy over politics.
Powell has maintained U.S. and global stability through the pandemic mostly by lowering lending rates to zero, survived instability in the U.S. debt market, and he defied Trump by resisting a call for “negative” lending rates to spur growth, but he has been seen as slow at dealing with inflation. Powell and Treasury Secretary Janet Yellin, who proceeded him at the Fed, see most of the inflationary prices as relatively temporary side effects of covid, and insist that structurally, the economy is improving at a fine clip. Regardless of who is in the chair, lending rates are going to rise slowly, which, of course, will draw different howls from the monied crowd who want more and more free loans.
Saving the financial markets in the U.S. and around the world by buying debt meant that Powell was also helping the wealthy who hold those financial instruments. As billionaires and corporations stayed afloat, millions of workers were laid off. Those policies have persuaded Warren to find Powell’s policies dangerous.
Naturally, the result should have been to tax the wealthy more, but we see those efforts falling flat in Congress, which also has resisted raising minimum wages, elimination of tax dodges, or bank regulation.
These policies are complicated, of course, and Biden’s deliberateness may be a benefit, rather than a perceived problem. In the end, however, choosing Powell is more for Wall Street than for the price at the pump.