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Don’t Politicize the Fed, Reappoint Chairman Jerome Powell



President

Biden

has too much on his plate. But there is one important task he should handle quickly: reappointing

Jerome Powell

as chairman of the Federal Reserve.

Let me start by praising the other person most frequently mentioned for the post: Fed Gov.

Lael Brainard.

(Both Mr. Powell and Ms. Brainard are personal friends of mine.) Ms. Brainard is smart and energetic. She has years of relevant experience at the Treasury Department and the Fed, where she has displayed superb judgment on monetary policy and regulatory matters. Were Mr. Powell not in place, I would be screaming from the rooftops that she should get the top job. I hope she does in four years.

But Mr. Powell is the incumbent and has a sterling record. Four years ago, President

Trump

decided to replace another terrific Fed chair, current Treasury Secretary

Janet Yellen,

with Mr. Powell simply because she is a Democrat. Now some Democrats are clamoring for Mr. Biden to replace Mr. Powell because he is a Republican. These aren’t good reasons.

Mr. Trump’s wrongheaded decision shouldn’t set a precedent. President Reagan reappointed Democrat

Paul Volcker

; President Clinton reappointed Republican

Alan Greenspan

twice; and President

Obama

reappointed

Ben Bernanke,

who was a Republican at the time. In all these cases, the reason was simple: They were doing the job well.

Fed appointments are political in the literal sense: The president nominates people who are subject to Senate confirmation. But the Federal Reserve shouldn’t become as political as, say, the Supreme Court. Top Fed officials are technocrats who make decisions on nonpolitical grounds. When I served as vice chairman of the Fed in the mid-1990s, talking politics at work was considered ill-mannered, like slurping soup. Nonpartisan central banking has served the U.S. well.

I’d rate Mr. Powell’s job performance as superb in these trying times. He had to overcome Mr. Trump’s repeated attempts to undermine the Fed’s independence by bad-mouthing the central bank and threatening to fire Mr. Powell. Then he had to steer monetary policy through the worst recession since the 1930s, which he did by slashing interest rates and opening up the lending spigot. Mr. Powell and his colleagues also changed the Fed’s monetary-policy framework to put more emphasis on unemployment and less on inflation.

There are only two minor blemishes on Mr. Powell’s record.

First, the recent scandal over large financial transactions by former Dallas Fed President Robert Kaplan and former Boston Fed President

Eric Rosengren.

Mr. Powell neither oversaw nor approved those activities. And now that they have come to light, he is making sure that a scandal like this never happens again.

The larger blemish, from the point of view of some Democrats, is on bank regulation, where Mr. Powell and the outgoing vice chairman for supervision,

Randal Quarles,

are

Bush

Republicans at heart. They are not wild deregulators, but they do favor a lighter touch on banks than Ms. Brainard does. They clashed with her over how tough banks’ stress tests should be.

But this blemish should not disqualify Mr. Powell.

Sen. Elizabeth Warren

(D., Mass.) has called him “a dangerous man” for his efforts to loosen financial regulations imposed after the 2008 financial crisis. But both

Christopher Dodd

and

Barney Frank,

authors of the Dodd-Frank Act of 2010, have endorsed Mr. Powell’s reappointment, observing in a joint op-ed that “nothing in Powell’s performance contradicts his assertion that he supports the basic framework we put in place.”

To strengthen the Fed’s regulation of banks, Mr. Biden should nominate Ms. Brainard as the next vice chairman for supervision, the Fed’s point person on regulatory matters. Mr. Powell has said that he intends to defer to the next vice chairman on regulatory issues. Replacing Mr. Quarles with Ms. Brainard would make a big difference.

Why do I raise the reappointment issue in October when Mr. Powell’s term ends at the start of February? Because the U.S. Senate moves so slowly. Mr. Obama announced his intention to renominate Ben Bernanke in August 2009. Four years later, he announced the nomination of Janet Yellen in October 2013. Even Mr. Trump, who left many top-level positions vacant for long periods, announced his nomination of Mr. Powell in November 2017. These decisions were made early enough that the Fed chairman could be confirmed before Feb. 1. It’s time.

While he is making Fed decisions, Mr. Biden should elevate Ms. Brainard to vice chairman for supervision and fill the longstanding vacancy on the Federal Reserve Board. The Fed is one of the few agencies that Mr. Trump didn’t politicize. Mr. Biden should keep it that way.

Mr. Blinder, a professor of economics and public affairs at Princeton, served as vice chairman of the Federal Reserve, 1994-96.

Journal Editorial Report: Paul Gigot interviews Senator Pat Toomey. Image: Kevin Lamarque/Reuters

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