On Monday, the White House announced that US President Joe Biden has planned to re-nominate Federal Reserve Chair Jerome Powell for a second term at the helm of the US central bank. The move amounts to an endorsement of Powell’s stewardship of the economy through a brutal pandemic recession, with the Fed’s monetary policy seen as helping revitalize the job market and push the stock market to record highs. Biden also said he would nominate Lael Brainard as vice-chair. However, stock markets rose on the announcement, which largely preserves the Fed policy status quo for investors. The S&P 500 rose 0.9% as of 10:45 a.m. Eastern time; the Dow and the tech-heavy Nasdaq each rose 0.7%. Biden will fill the three remaining slots on the Fed board in early December.
The chairman of investment firm Sanders Morris Harris, George Ball said, “Replacing Jerome Powell would have sent a psychological signal that the progressives are in power, which would have been unsettling to markets”. President Biden also issued a statement and said, “I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before. I have full confidence after their trial by fire over the last 20 months that Chair Powell and Dr. Brainard will provide the strong leadership our country needs”. Biden’s decision, reached after extensive consideration, strikes a note of continuity and bipartisanship at a time when surging inflation is burdening households and raising risks to the economy’s recovery.
President Biden also brushed aside complaints from progressives in backing Powell that the Fed has weakened bank regulation and has been slow to take account of climate change in its supervision of banks. Democratic Senators Sheldon Whitehouse and Jeff Merkley wrote to Joe Biden last week and opposed Powell’s re-nomination. He said, “I refuse to recognize climate change as an urgent and systemic economic threat”. Democratic senator Sherrod Brown (chairs the Senate Banking Committee) and Senator Elizabeth Warren have also expressed concerns that the Fed has rolled back regulations for banks under Powell’s watch. The bank has faced allegations of impropriety in a blemish on Powell’s first term as Fed chief after it was revealed that senior central bank officials traded stocks in early 2020, potentially benefiting from the Fed’s policy of pumping billions of dollars into the US economy.