Biden Dodges Senate Showdown Risk With Powell-Brainard Picks

(Bloomberg) -- President Joe Biden’s picks of Jerome Powell and Lael Brainard as chair and vice chair of the Federal Reserve help him avoid a contentious Senate confirmation battle heading into a midterm election year in which inflation looms as a major issue. 

Although some progressives, including Senators Elizabeth Warren, Jeff Merkley and Sheldon Whitehouse, opposed a second term for Powell, the Fed chair drew broad bipartisan support Monday with positive nods from Banking Chairman Sherrod Brown and Pat Toomey, the panel’s top Republican.

“I look forward to working with Chair Powell, Dr. Brainard, and President Biden to stand up to Wall Street on behalf of workers, small businesses, and communities across the country and make our economy work for everyone,” Brown, an Ohio Democrat, said in a statement.

A majority of Republicans on the Senate Banking Committee had already publicly backed Powell, who was first nominated as Fed chair by former President Donald Trump and confirmed 84-13. A number of Democrats have praised Powell’s leadership of the Fed and cited the need for continuity at the central bank as the world’s largest economy is still emerging from the shock of the pandemic.

Democratic Senator Mark Warner of Virginia said he expects Powell to be “overwhelmingly” confirmed for a second term as Fed chair.

“In Jay Powell, we not only have continuity, we have someone that the markets are comfortable with, we have someone that both Democrats and Republicans alike respect,” Warner said on Bloomberg Television. With Brainard, “it’s a great one-two punch,” he added.

The path to confirmation for Brainard, who was appointed to the Fed board by former President Barack Obama, is slightly narrower than Powell’s. Some Republicans are uneasy with her stricter approach to bank regulation, which have won her praise from progressives like Warren. Still, she should have little trouble getting confirmed in the Senate. She was confirmed to her current role as a Fed governor 61-31.

“Ultimately, her reputation is strong enough academically, as well as her relative popularity with Republican members of the Federal Reserve, should signal to Senate Republicans that she is acceptable,” Brian Riedl, a senior fellow at the conservative Manhattan Institute said. “The fact that Biden has renominated Powell for four years gives him some extra credibility to ask for Republicans to vote for her as well.”

Biden’s battle may come when he decides on nominees for three other spots on the seven-member Board of Governors, including the key vice chair of supervision role. The nominee for that position will now carry a greater burden in the struggle between Democrats and Republicans over the role of the Fed. 

“Powell’s failures on regulation, climate and ethics make the still-vacant position of vice chair of supervision critically important,” Warren said in a statement Monday. “This position must be filled by a strong regulator with a proven track record of tough and effective enforcement and it needs to be done quickly.”

Many progressive Democrats want the Fed to require banks to take into account climate risks in their loans. Sarah Bloom Raskin, who some progressive advocates back for vice chair of supervision, criticized the Fed for buying debt of fossil fuel companies last year during the pandemic. 

Jeremy Kress, a former Fed attorney, said the re-appointment of Powell demonstrates the Biden administration is signaling that financial regulation will be handled through other appointments.

Kress, who is now a business law professor at the University of Michigan, said this “ups the ante” for Biden to come out with a strong vice chair for supervision, have a strong Federal Deposit Insurance Corporation chair pick in 2023 and for Saule Omarova to be confirmed by the Senate as comptroller of the currency, despite strong opposition from Republicans.

“They’ve implicitly said we are gong to take care of financial regulation through these other appointments. OK, so prove it,” he said.

But placating the demands of Warren and other progressives for a tough regulator who would act on climate would likely bring strong opposition from Republicans like Toomey, who argue issues like climate or racial justice are the job of Congress, not the Fed, and are wary of a push to add more regulations.

The fate of any nominee who can’t win over Republicans in a 50-50 Senate would be in the hands of moderate Democrats like Montana Senator Jon Tester, who has backed deregulation efforts for smaller banks, and West Virginia Senator Joe Manchin, who has strongly criticized the Fed’s bond-buying program this year and represents a coal-producing state.

Having Powell at the top, however, might make it easier to confirm the rest of Biden’s picks, because the Fed chair has an effective veto over the agenda.

©2021 Bloomberg L.P.