A strange but consequential fight over the future of the Federal Reserve has been brewing among progressives. The left is split on whether President Joe Biden should reappoint Jerome Powell, the chair of the Federal Reserve whose term is up in February, or replace him with someone more aggressive on climate change and financial regulation.
Last week, New York Representative Alexandria Ocasio-Cortez and other members of the Squad, including Representatives Rashida Tlaib and Ayanna Pressley, escalated the anti-Powell campaign, calling on Biden to replace him. “We urge President Biden to re-imagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice,” the lawmakers said in a joint statement.
“At a time when the Intergovernmental Panel on Climate Change is warning of the potential catastrophic and irreversible damage inflicted by a changing climate, we need a leader at the helm that will take bold and decisive action to eliminate climate risk.”
Democratic Senators Sherrod Brown, who chairs the Senate Banking Committee, and Elizabeth Warren have also criticized Powell for his record on bank regulation, but won’t say whether they support him for another term. Senator Sheldon Whitehouse went further, recently tweeting that if Powell “still wants to find ‘middle ground’ between the warnings of science and the lies of the fossil fuel industry, he has to go.”
Biden is expected to make a decision on the appointment as early as next month.
Powell—the lifelong Republican and former private equity mogul who was tapped by former President Donald Trump to lead the central bank in 2017—has enjoyed broad bipartisan support. Treasury Secretary Janet Yellen has backed Powell for another term, and he’s well-liked among Democrats, Republicans, and many progressives. He won over a number of left-leaning economists, policy-makers, and others on the political left because of his forceful economic response to the pandemic and broader commitment to reducing unemployment.
“Even before the pandemic, the Fed under Powell was clearly turning away from the neoliberal orthodoxy of the past 40 years,” said J.W. Mason, an economist at the City University of New York and fellow at the Roosevelt Institute. “If we want to see a fundamental transformation of the Fed then, paradoxical as it may sound, the best hope might be to reappoint Powell.”
Under Powell’s leadership, the Federal Reserve has shifted away from its obsession with taming inflation and adopted a framework that prioritizes the goals of “maximum employment.” The US central bank has a dual mandate of price stability and maximum employment; and the way this mandate is carried out has enormous consequences for the working class. If the employment aspect of the mandate is taken seriously, it means millions more get jobs and stay at work, with the most vulnerable workers in the country benefiting the most. This also creates conditions that strengthen the bargaining power of the working class as a whole, making it harder for bosses to get away with treating workers poorly or paying low wages. Powell’s willingness to advocate for more aggressive fiscal stimulus, and his willingness to argue that income inequality is within the scope of macroeconomic policy, Mason added, are also dramatic breaks from the orthodoxy. Powell is, by many metrics, the most worker-friendly Fed chair we’ve seen in generations. His defenders argue that reappointing him is the only way to ensure that these ideological shifts last beyond the coronavirus recovery.
The Revolving Door Project, part of the left-leaning Center for Economic and Policy Research, has been one of the most outspoken critics of Powell. In late August, a coalition of 22 national progressive groups organized by the Revolving Door Project sent a letter to Biden demanding that he appoint a Fed chair who focuses on climate change, systemic racism, protecting against recessions, and ensuring full employment.
Even the anti-Powell side agrees that he’s been solid on the core macroeconomic functions of the job. But they believe that his record should be considered holistically and not only in terms of monetary policy. When it comes to regulating Wall Street, Revolving Door research director Max Moran said, Powell “has been a catastrophe.” In 2018, Powell publicly supported legislation to roll back critical aspects of the Dodd-Frank Act, the regulations enacted in the aftermath of the 2008 financial crisis. He’s gone out of his way to weaken financial protection rules in other cases as well, including capital and liquidity requirements, stress tests, and the Volcker rule, which was designed to prevent banks from making risky trades with their own money.
But the coalition didn’t name anyone they believed would be better suited for the job. Powell’s critics argue that there are plenty of people Biden could choose from who would be more committed to Democratic priorities. Lael Brainard, the lone Democrat on the Fed’s seven-member board, is considered to be the leading contender to replace Powell.
Powell would almost certainly be the easiest candidate to get through the Senate if he’s renominated. As a Trump appointee, he would have at least some Republican senators on board. A different Biden candidate, like Brainard or someone more progressive, on the other hand, could be derailed in the evenly divided Senate.
Climate is one of the biggest issues motivating the anti-Powell faction. At a recent conference, Powell acknowledged the “profound challenges” that the climate crisis poses to the global economy and financial system, but insisted that it’s not a main consideration for the institution when setting monetary policy. Climate action, Powell said, “is not a question for the Federal Reserve.” Activists also point to the fact that Powell refused to let the Fed join the Network for Greening the Financial System, an international group of central banks focused on managing climate risk, until after the 2020 election.
Some central banks, like Japan’s and the European Union’s, have pledged to incorporate the climate crisis into their policy-making. “Our planet is burning, and we central bankers could look on our mandate and pretend that it is for others to act and that we should simply be followers. I don’t think so,” European Central Bank President Christine Lagarde said over the summer.
So the activist left is understandably frustrated with Powell’s view of the Fed’s role in combating climate change. The divide on issues like climate and regulation really stems from what progressives think the most important job of the Fed should be: monetary policy or its regulatory duties. But the other source of conflict on the left, Mason said, has to do with the long-standing bipartisan tradition of keeping a Fed chair regardless of the party that picked them. Presidents, going back to Ronald Reagan, have typically reappointed the chair picked by their predecessor. Trump has been the only exception—he replaced Janet Yellen, a Democrat and Obama appointee, with Powell. “You’ve had sort of this continuity between the parties in terms of their Fed chairs and that’s sort of created the sense that we don’t get to vote on who the Fed chair is because Republicans, Democrats, they appoint the same individual,” Mason said.
“So I think a lot of people on the left see that pattern and think that’s a bad pattern. We actually want the Fed to be subject to democratic politics. We want it to be more accountable. We don’t like this notion that there’s a bipartisan consensus and elections don’t matter.”