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President Biden’s Plans for the Federal Reserve: Live Updates

ImageJerome H. Powell’s reappointment suggests that the White House is not aiming to completely overhaul the institution.
Jerome H. Powell’s reappointment suggests that the White House is not aiming to completely overhaul the institution.Credit…Nate Palmer for The New York Times

President Biden will renominate Jerome H. Powell, the Federal Reserve chair, to another four-year term — ensuring policy continuity at a moment of rapid inflation and vast economic uncertainty but potentially angering progressive Democrats who had been agitating for a change in leadership.

The much-awaited decision was a return to tradition in which the central bank’s top official is reappointed regardless of partisan identity — a norm bucked by former President Donald J. Trump, who appointed Mr. Powell instead of renominating Janet L. Yellen.

It reflected a general view by Mr. Biden and his top aides that Mr. Powell has done well in supporting the economy through the pandemic recession and its halting recovery. It is also a bet that Mr. Powell is the right leader to steer the Fed through an economically and political treacherous storm of price increases, which administration officials are convinced will dissipate next year.

Mr. Biden will also nominate Lael Brainard, a governor whom many progressive groups had championed to replace Mr. Powell, to serve as the Fed’s vice chair. Renominating Mr. Powell — who won bipartisan support moments after the announcement — also spares the White House what might have been a bruising confirmation battle if the president had instead chosen Ms. Brainard, who has fewer Republican supporters in the Senate than Mr. Powell.

The stakes in the choice are unusually high.

Inflation has picked up sharply this year, with consumer prices increasing at the fastest pace in more than three decades in the year through October. The central bank is charged with keeping consumer prices stable while striving for maximum employment, and striking that balance could require difficult policy choices in the months ahead.

While taming inflation falls to the Fed, Mr. Biden has been suffering politically as prices rise for food, gas and airplane tickets. The president has repeatedly tried to reassure Americans that his economic policies will ultimately calm inflation, a message he is expected to repeat during remarks on Tuesday. His Fed decisions in recent weeks have become tangled in the politics of price increases, particularly as the president pushes Senate Democrats to coalesce around a $2.2 trillion climate change and social policy bill that Mr. Biden says will ease inflationary pressures in years to come but Republicans warn will stoke higher prices immediately.

Mr. Biden, who will also nominate Lael Brainard, a governor, to serve as the Fed’s vice chair, said he was certain that both Mr. Powell and Ms. Brainard would work to stabilize inflation and keep the economic recovery on track.

“I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable and delivering full employment will make our economy stronger than ever before,” Mr. Biden said in a statement on Monday.

Mr. Powell’s reappointment suggests that the White House, which has a chance to fully reshape the Fed, is not aiming to completely overhaul the institution. The Biden administration already has one vacant governor role to fill, and two more seats will open early next year, giving Mr. Biden room to appoint at least three of seven governors. The president must also fill several leadership roles, including the Fed’s vice chair for supervision, a powerful position given its influence on bank oversight.

Mr. Biden has been under pressure from progressives and moderate Democrats to pick a diverse slate of leaders for the Fed who would prioritize tough bank regulation and do what they could to address climate change risks in the financial system.

Mr. Powell has come under criticism for being slow to address climate change and for backing measures that have chipped away at some post-crisis financial rules. In his statement on Monday, Mr. Biden said that he expected Mr. Powell, along with Ms. Brainard, to “address the economic risks posed by climate change and stay ahead of emerging risks in our financial system.”

Whether that will be enough to appease Mr. Powell’s critics remains to be seen. The Fed chair’s tenure has been criticized by some progressives, including Senator Elizabeth Warren of Massachusetts, who has called Mr. Powell “a dangerous man.” On Friday, Senator Sheldon Whitehouse of Rhode Island and Senator Jeff Merkley of Oregon released a statement opposing Mr. Powell’s reappointment. But Republicans, who supported Mr. Powell when he was nominated as chair by Mr. Trump, are likely to vote to confirm him again.

Moments after the nomination was made public, Senator Patrick J. Toomey, Republican of Pennsylvania, released a statement saying he would support Mr. Powell’s nomination.

Mr. Biden’s decision was influenced by a complicated economic moment. Inflation has jumped higher thanks to booming consumer demand, tangled supply lines and labor shortages that have helped to push the cost of used cars, couches and even food and rent higher. Yet millions of workers are missing from the labor market compared with before the pandemic. As a result, the Fed may be left balancing its two key goals as it charts its future policy path.

So far, the central bank has decided to slow its large bond-purchase program, a first step toward withdrawing monetary policy support that will leave it more nimble to raise interest rates next year if reigning in the economy becomes necessary.

The federal funds rate has been set to near-zero since March 2020, keeping many types of borrowing cheap and helping to fuel home and car purchases and other types of demand that in turn set the stage for strong hiring. Raising it could cool off growth and weaken inflation.

Yet trying to slow price gains would come at a cost. Workers are still trickling back after severe job losses at the onset of the pandemic, and the Fed is hoping to give the job market more space and time to heal. That’s especially true because continued waves of infection may be keeping many people from searching for work, either out of health concerns or because they lack child care.

Navigating the next steps will be no easy task.

Mr. Powell is a Republican who was first appointed by President Barack Obama as a Fed governor, then elevated to chair by Mr. Trump, whose decision to replace Ms. Yellen as Fed chair upended a longstanding tradition in which presidents reappoint Fed chairs of the opposite party who had done a good job.

Ahead of the White House’s decision, some economists had argued that it would be valuable to restart that pattern. Doing so, the logic went, would signal that the Fed is a technocratic body that sets prudent economic policy without taking into account political considerations.

Plus, Mr. Powell is often lauded for his track record as chair, which has seen the central bank pursuing full employment with vigor. The Fed guided the economy through the start of the coronavirus pandemic, unveiling a series of market rescue programs that kept Wall Street functioning and averted a financial disaster that could have cascaded through the economy.

But Mr. Powell had faced opposition from some progressive Democrats, first over his history of voting for changes that made financial regulation looser for banks, and later because of an ethics scandal that took place while he was overseeing the central bank. Two of the Fed’s 12 regional presidents made significant financial trades for their private accounts in 2020, when the Fed was actively rescuing many markets from pandemic fallout.

Mr. Powell has said that he defers to the person Congress has confirmed to the bank supervision role to set the agenda when it comes to regulatory matters. The Fed has unveiled new ethics rules since news of last year’s financial activity broke.

Presidential nominees to the Fed Board and Fed leadership positions must first pass through a Senate committee, then through a vote on the Senate floor.

President Biden will nominate Lael Brainard as the Federal Reserve’s Vice Chair.Credit…Justin T. Gellerson for The New York Times

President Biden said he would nominate Lael Brainard as the Federal Reserve’s vice chair, the No. 2 role at the Fed and one that could give her a stronger mandate to influence everything from the cost of money to the future of digital cash.

Ms. Brainard, who has been a Fed governor since 2014, is already part of the close inner circle of policy advisers of Jerome. H. Powell, the Fed chair. But her elevation to vice chair will make her Mr. Powell’s closest collaborator on monetary policy matters if she is confirmed by the Senate.

The vice chair holds little power officially, but in practice is regularly the person who floats new ideas in speeches and who helps to guide a Fed chair’s thinking on policy matters.

Ms. Brainard’s elevation comes at a pivotal economic moment. The Fed is wrestling with how to set policy at a time when inflation has shot higher but millions of jobs remain missing. Like Mr. Powell, Ms. Brainard has been wary of reacting to high prices too swiftly by lifting interest rates to choke off growth, worried that it could diminish job market opportunities. But both are carefully watching the price trajectory, with an eye on ensuring that high inflation does not become a long-lasting trend.

Ms. Brainard would be the third woman in the Fed’s 108-year history to hold the job, following in Janet L. Yellen and Alice Rivlin’s footsteps. Her new role would put her in a powerful position to weigh in on the path ahead for digital currency as the Fed contemplates whether it needs to issue one, something some other global central banks have done or are in the process of doing. Her more elevated position could also give her a bigger bully pulpit on climate-related issues.

She has been a major proponent of a more active Fed role in making sure the financial system is prepared for potential fallout from climate change. She gave a speech at the Fed’s first climate-focused conference in 2019 and has recently focused on the need for climate scenario analysis for banks, which would test how well they would hold up amid extreme weather events, sea level change and other climate-tied risks.

Ms. Brainard is a longtime Washington policymaker. She played a leading role in European debt crisis and Chinese currency deliberations during the Obama administration as a Treasury Department official, and she worked for the National Economic Council during the Clinton administration. She earned her economics doctorate at Harvard and was an up-and-coming professor at the Massachusetts Institute of Technology before moving to Washington to pursue a career in policy.

Ms. Brainard was initially viewed as a leading candidate for Biden administration Treasury secretary, though some progressive groups opposed her for the job. Many of those same people had pushed her as a candidate for Fed chair or another top leadership role, though — often based on her track record when it comes to financial regulation.

As the sole Democrat left at the Fed board in Washington after 2018, Ms. Brainard used her position to draw attention to efforts to chisel away at bank rules, a process that was being driven by Randal K. Quarles, the Fed’s vice chair for supervision who is stepping down in December. In the process, she created a rare public disagreement at the consensus-driven central bank, dissenting from policy changes more than 20 times in 2019 and 2020.

Ms. Brainard often released detailed explanations of her dissents, laying out a road map of what changes were made and why they might be problematic. For instance, when the Fed streamlined its stress-test approach, she supported simplification in spirit — but disagreed with how it was done.

“Today’s rule gives a green light for large banks to reduce their capital buffers materially, at a time when payouts have already exceeded earnings for several years on average,” she said, publishing an analysis of how she came to that conclusion, one that Mr. Quarles disagreed with.

Her new position will not give her more direct say over financial regulation than she previously had — governors all have a single vote on regulatory decisions — but she and her record of dissents could be a resource for the new person coming into the vice chair for supervision job.

Ms. Brainard’s international policy background will also mean that she can bring a global view to bear on monetary policy, a fact some commentators have been celebrating.

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