Federal Reserve Chairman Jerome Powell faces reappointment amid turmoil

Jerome H. Powell’s term as Federal Reserve chairman nears an end, President Biden’s decision to hire him has become more complicated amid an outspoken opposition to his leadership from Senator Elizabeth Warren and an ethics scandal. , which has surrounded their center. Bank.

Mr Powell, whose four-year term as chairman ends early next year, has a good chance of being reappointed as he criticized the White House for his aggressive use of the Fed’s tools in the wake of the pandemic slowdown. Has earned respect within, said people familiar with the administration’s internal discussions.

But the timing of the decision and announcement remains subject to an unusually high degree of uncertainty, even for a top economic appointment. The White House is most likely to announce Mr Biden’s choice in the coming weeks, but even that is tough.

The administration is busy with other key priorities, including passing spending laws and lifting the country’s debt limit. But the uncertainty also reflects the growing complexities surrounding Mr. Powell’s nomination. Ms. Warren, a Democrat from Massachusetts, has destroyed her track record on big bank regulation and last week she “dangerous man“To lead the central bank.

He has also targeted Mr. Powell for not stopping top Fed officials from trading securities in 2020, a year in which the central bank saved the markets, potentially giving officials privileged information. According to recent revelations, the two regional presidents traded in assets for their own benefit, which could have influenced the Fed’s actions. and Richard H. Clarida, the Fed’s vice president, moved money from bond funds to stock funds in late February 2020, before the Fed indicated it would protect markets and the economy.

“It is not clear why Chair Powell has not taken steps to stop these activities,” Warren said during a Senate speech on Tuesday, after sending a letter on Monday. Securities and Exchange Commission to investigate Whether the transaction was equivalent to insider trading. “The responsibility for protecting the integrity of the Federal Reserve rests entirely with him.”

Asked on Tuesday if he trusted Mr Powell, the president said he did but he was still holding onto events.

A White House decision on Mr Powell’s future is pending at a critical moment for the US economy. Millions of jobs are still missing compared to before the pandemic, and inflation has become higher as strong demand clashes with supply chain disruptions, presenting the Fed chair dichotomous challenges to navigate. The Fed’s next leader will also shape its participation in climate finance policy, a potential central bank digital currency and response to the central bank’s ethical dilemma.

“This is starting to feel like an incredibly consequential time for the Fed,” said Dennis Kelleher, chief executive of Better Markets, a group that has criticized the Fed’s regulatory moves in recent years and inadequate ethical oversight. criticizes it.

The administration is under pressure to make an immediate decision, as the Fed’s seven-person board of governors in Washington will soon face an inauguration. The role of a governor is already open. Mr. Clarida’s term expires early next year, leaving another vacancy, and Randall’s Quarrel’s term as vice chairman of the board for supervision will end next week, although his term as governor will last until 2032. Is.

By announcing key selections too soon, the Biden administration can ensure that someone is ready to step into Mr Quarles’ leadership role. And nominating multiple officials at once could give the president a chance to show that he is heeding the concerns of Democrats in Congress who want to see more diversity in the Fed and officials who support tougher bank regulation.

But the ethics scandal threatens to complicate the challenges.

Recent financial disclosures showed that Robert S. Kaplan at the Federal Reserve Bank of Dallas traded millions of dollars in individual stocks last year, and Eric S. Rosengren at the Federal Reserve Bank of Boston traded real estate-linked securities, Even though he has publicly warned about the problems in that area. The trades have drawn criticism because they occurred during a year in which the Fed heavily influenced a wide range of financial markets.

Both men resigned from their roles as regional presidents amid the controversy, although Mr Rosengren said he was leaving for health reasons.

Attention has now turned to Mr. Clarida. All of their trading was in broad funds, not individual securities, and has been public since May, but has attracted attention amid current counts. He sold a stake in the bond fund for at least $1 million in aggregate and transferred that money to a stock fund on February 27, 2020. The transaction gave him more exposure to stocks shortly before the Fed began introducing policies that promoted such investments.

The Fed has said Mr Clarida’s trades were part of a planned portfolio rebalancing, but declined to specify when the plan happened.

Mr. Powell launched an internal ethics review last month. A Fed spokesman said Monday that an independent government watchdog would investigate whether senior officials broke relevant ethics rules or laws.

But some progressives have seized on the problems to strengthen their case that Mr. Powell should not be reappointed. Revolving Door Project founder and executive director Jeff Hauser, who has urged Biden to keep corporate influence out of his administration, has pointed out that the Fed chairman himself moved the money around last year, listing 26 transactions, even if all are in broad-based funds. He also noted that Lyle Brainard, a Fed governor and longtime favorite to replace Mr. Powell if he is not reappointed, did not report any transaction years.

“If you are trying to go above and beyond, and are beyond reproach, then not trading is the better option,” Mr Hauser said.

It is not clear how much of a blow Mr. Powell will ultimately suffer. During his testimony before a Senate committee last week, lawmakers asked him about ethics issues, not explicitly blaming him for them.

Trades were not uncommon historically. Mr. Kaplan dealt in shares throughout his tenure, including Mr. Powell’s predecessor, Treasury Secretary Janet L. Yellen headed the central bank. Ms. Yellen’s Vice President, Stanley Fisher, bought and sold individual stocks, their 2017 disclosures revealed. Ms. Brainard herself has made in the past broad-based transactions. It was the Fed’s more detailed role in 2020 that prompted the backlash.

Agencies often need a “wake-up call” to notice emerging problems with their oversight rules, said Norman Eisen, a senior fellow at the Brookings Institution and an ethics adviser at President Barack Obama’s White House.

“My own view is that Chair Powell is moving swiftly to address the weaknesses of the Fed’s ethics system,” he said.

Ms Warren cited regulation, not ethics issues, when she first announced she would not support Mr Powell. Democrats have expressed concern for years about the regulatory approach the Fed has taken under Mr. Quarles. Mr. Powell has largely deferred to his vice president for supervision as the central bank has made bank stress tests more transparent and capable big banks Getting more involved with venture capital.

Critics say reappointing Mr Powell equates to maintaining that more pragmatic regulatory approach. And some progressive groups suggest that if Mr. Powell remains in his place, Mr. Quarles will feel excited to continue: he has indicated that he will remain as Fed governor after his leadership term ends. can stay.

This would mean that four out of seven officers on the Fed board – the majority – would remain appointed by Republicans. Two other governors – Michelle W. Bowman and Christopher J. Waller – was nominated by President Donald J. Trump.

During Mr. Powell’s Senate testimony last week, Ms. Warren said re-nominating her as chair meant “gambling that, for the next five years, a Republican majority in the Federal Reserve, with a Republican chair that had Voted regularly to regulate Wall Street, won’t drive this economy on a financial cliff again.

Even without Ms. Warren’s approval, Mr. Powell is likely to have enough support to approve the Senate Banking Committee, thanks to his continued support from Republicans on the committee, so the full Senate can vote on his nomination. But a powerful Democratic opponent whose support the administration needs on other legislative priorities is not helpful.

The Fed chair has some powerful allies in the administration, including Treasury Secretary Yellen. But the decision rests with Mr Biden.

“I know he will speak to many people and consider a wide range of evidence and opinions,” Ms Yellen said on CNBC on Tuesday.

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