Jerome Powell’s narrow path to second term as Fed chair

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WASHINGTON — With more than two years left in his term as Federal Reserve chairman, Jerome Powell finds himself in a unique bind: Neither the president that nominated him nor many of that president’s Democratic rivals seem inclined to tap him for a second term.

Fed chairs traditionally have had more support from sitting presidents as well as White House aspirants regardless of party. Powell finds himself in a less desirable circumstance not because of any error or blunder, just politics.

“If you're looking at it now, a ways out, you probably wouldn't like his chances of being renominated … relative to this position during previous cycles,” said Ian Katz, an analyst with Capital Alpha Partners. “There's always been the case made for continuity. There's a tradition at the Fed where party politics is not as important as it is in other agencies.”

Previously, running the central bank was a job removed from the political cycle. Former Fed Chairmen Paul Volcker, Alan Greenspan and Ben Bernanke all were appointed by both Democratic and Republican presidents.

President Trump bucked that tradition in November 2017 by nominating Powell as Fed chair rather than reappointing Janet Yellen, whose monetary policy attitudes were widely seen as indistinguishable from Powell’s.

But whereas Trump appeared to consider Yellen for a second term, praising her despite choosing someone else, Trump has since made something of a fetish out of criticizing Powell.

Meanwhile, the Democratic field also does not seem inclined to give Powell a second term either, particularly Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt.

Aaron Klein, a Brookings Institution economic studies fellow, said Powell looked the part of a central banker to Trump. But Trump reversed his assessment of the Fed chair as their views on monetary policy clashed.

“Donald Trump views high-profile nominations more like 'The Apprentice' than policy school," Klein said. "He focuses on appearance — does a person fit the part? It's casting.”

Trump has lashed out at Powell in interviews and a seemingly endless string of tweets, and has even reportedly asked aides whether he can fire Powell (he probably can’t). At issue is the federal funds rate, a key interest rate benchmark set by the Federal Reserve’s Federal Open Market Committee and that Trump would prefer to be at — or below — zero. The FOMC’s current rate target is between 1.5-1.75%.

Powell, for his part, has long maintained that the FOMC makes its decisions based on the best available economic data.

“He’s has done a very good job under very difficult circumstances with monetary policy,” Klein said.

Powell may have succeeded in not bowing to Trump’s pressure to aggressively cut interest rates. But should Trump win reelection, it is exceedingly unlikely that he would tap Powell for another term when his current one expires in February 2022.

His job prospects would look similarly dim if a progressive such as Warren or Sanders won the presidency. Two other presidential candidates in the Senate, Kamala Harris of California and Cory Booker of New Jersey, both opposed Powell's first confirmation. Yet analysts say they could see a more moderate Democrat such as former Vice President Joe Biden, who still leads many of the recent presidential primary polls, reappointing Powell.

“The irony to begin with is that he's more likely to be renominated by a Democrat than he is by Trump,” Katz said. “When has that been the case before?”

Warren, who currently leads polls for the first Democratic contest, the Iowa caucuses, was the only member of the Senate Banking Committee to vote against Powell's nomination in the committee. She led an effort on the Senate floor to block his confirmation by the full Senate.

“I am concerned that as chair of the Fed, Governor Powell will roll back critical rules that help guard against another financial crisis, and that is simply a risk we cannot afford,” Warren said of Powell’s nomination on the Senate floor. “We need a Fed chair who can stand up to Wall Street and think about the needs of working families in this country. We need someone who believes in the toughest rules for banks, not in weaker rules for banks. That person is not Governor Powell.”

Sen. Warren’s effort was ultimately unsuccessful and Powell was confirmed 84-13. Among the current Democratic candidates, Sens. Amy Klobuchar of Minnesota and Michael Bennet both supported Powell's confirmation.

Yet it would not be inconceivable for Warren to renominate Powell to a second term, so long as she is able to nominate and install a more hawkish vice chairman of supervision to succeed Randal Quarles, whose term expires in October 2021.

She has voiced few objections to Powell's monetary policy decisions, and some observers believe Warren would view the appointment for vice chair of supervision job as a higher priority.

“If I’m in Warren’s inner circle, of course the chairman of the Federal Reserve matters, but to advance your policies, especially on the nation’s largest banks, that vice chair position will become vitally important,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “I don’t want to say the vice chair for supervision is more important, but it’s close for bank investors.”

Katz agreed, noting that a President Warren could conceivably renominate Powell without having it appear as too much of a reversal.

“Warren's opposition to him [makes it] unlikely that she would we nominate him, [but] she could have a change of heart if she were president and say, 'Well for the sake of continuity,' or something along those lines,” Katz said. “I don't think it would be that difficult to back away from that.”

But Powell’s best chance for renomination will likely come from a more moderate Democrat like Klobuchar, Biden or South Bend, Ind., Mayor Pete Buttigieg, though none of the candidates have stated their views on Powell’s performance one way or the other. (Attempts to reach the campaigns for Biden, Warren, Sanders, Buttigieg, Harris, Klobuchar and Booker were unsuccessful.)

There are several other factors playing in Powell’s favor regardless of who the nominee is. For one, the nominating president is not the only constituency that a prospective Federal Reserve chair would have to satisfy. The nominee would have to gain 50 votes in the Senate, and would also have to be generally acceptable to the markets. And it also depends on who the president nominates for other top positions in the administration.

“Ultimately, the president gets to pick the person, but they need Senate confirmation,” Klein said. “Whoever the next president is, they have to corral the votes for their person, and that depends on the makeup of the Senate and where different people are.”

Whether the economy is in recession in 2022 when the next president is deciding who to nominate as Fed chair will also play a big role. If Powell has the confidence of market participants and the economy is in trouble, that could make it harder for the next president to replace him.

“Many market participants think the probability of a recession between now and [2022] is over 50%,” Klein said. “Economic policy choices can be very different in the recession. Monetary policy is an important tool in fighting recessions.”

But all of this assumes that Powell would even seek another term as chair if it were offered. Boltansky said he may very well choose to retire when his term expires.

“I don’t know why Powell would want to stick past the end of his term,” Boltansky said. “I would argue this has already been extra innings for him. He had a wildly successful career, he’s Fed chair, and he’s got enough respect to ride off in the sunset, so I don’t know why he would go through that confirmation process again.”

The onerous Senate confirmation process — which has already scuttled two of Trump’s nominees to the Fed board — could very well narrow any future president’s potential field of qualified nominees not only for the Fed, but across the federal government.

“That’s something that I believe is truly going to hamper financial markets, because Congress has ceded a lot of its authority over the last 30 years to the regulatory apparatus,” Boltansky said. “So if you can’t get qualified folks into those top positions, those moments of crisis are going to be exacerbated.”

But Klein said that Powell’s chances of renomination are unlikely to have any bearing on his conducting of monetary policy. His strength — at least to Democratic candidates — is his insistence on acting independently of political pressures.

“I think he plays it straight,” Klein said. “And let the chips fall where they may.”

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Monetary policy Election 2020 Policymaking Jerome Powell Elizabeth Warren Donald Trump Joe Biden Bernie Sanders Federal Reserve