AUGUST 25, 2021
Kuttner on TAP
Biden Should Retire Fed Chair Jay Powell
The battle comes to a head this week, with Biden’s decision expected around Labor Day. The pro-Powell case boils down to three contentions. He’s been good on monetary easing. As a conservative Republican, he helps protect Biden from the charge of being soft on inflation. And he’d be confirmed overwhelmingly.

But the case against Powell is stronger. The Fed also does financial regulation. Here, Powell has been terrible—just what you’d expect of a conservative Republican who used to be a partner with the private equity Carlyle Group.

As Fed chair, Powell has increased the concentration of the financial industry, and has worked to weaken the none-too-strong protections of the Dodd-Frank Act.

The alternative is Fed governor Lael Brainard, the lone Democrat on the Fed. When Brainard was being touted for Treasury secretary, I was lukewarm about her. But she has become a regulatory titan and would be light-years better than Powell.

As Dennis Kelleher of Better Markets points out, there is a connection between monetary policy and regulatory policy. Powell’s version of a loose monetary policy was simply to throw cheap money at financial markets. In the absence of stronger regulatory strictures, zero-interest-rate money increased speculative-bubble activity on Wall Street.

A Powell reappointment would be out of sync with all of Biden’s excellent regulatory appointments to date. Personnel is policy.

But the clincher for naming Brainard over Powell is the domino effect. Right now, the Fed’s board of governors has four conservative Republicans, one pro-regulation Democrat in Brainard, and two vacancies.

If Biden reappoints Powell, the Fed keeps its working majority of four regulatory conservatives close to Wall Street. But if Biden replaces Powell as chair, then the majority flips to at least 4-3 in favor of much tougher financial regulation, since Powell would almost surely leave the Fed entirely. Likewise the ultraconservative Randy Quarles, whose term as vice chair for supervision expires in October.

The Powell camp has been pitching the idea, as a sop to liberals, of naming Brainard as Fed vice chair for supervision. But the Fed chair sets the agenda and runs the place. A vice chair for supervision at odds with the chair would have no power.

If Brainard replaced Powell, two candidates for other Fed seats are former Fed governor Sarah Bloom Raskin and Lisa Cook, an eminent African American economist at Michigan State who worked in the Biden transition.

This would give the Fed three strong, progressive women, and perhaps more. The contention that Powell would be confirmed by nearly all Senate Republicans is a good argument for not reappointing him. Republicans love Powell because he is such a force for deregulation.

Biden has the chance to appoint the most progressive and diverse Fed ever. He shouldn’t blow it.

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