A Brainard Fed Chair Nomination Would Set Up Manchin as a Key Vote
(Bloomberg) -- If President Joe Biden chooses Lael Brainard to replace Fed Chairman Jerome Powell, her confirmation -- like so much else in Washington -- could turn on whether she can win over Senator Joe Manchin, the leading Democratic critic of the Fed’s monetary policy and a supporter of fossil fuels.
While Brainard would likely win confirmation, she wouldn’t get the slam dunk bipartisan vote the White House could expect for Powell. She’d either have to appease Manchin -- who has been aggressively warning about inflation and represents a coal-producing state -- or win Republican votes, which are far from assured in the 50-50, highly partisan Senate.
Biden said he will name his pick for Fed chair, and potentially several other positions on the board, “fairly quickly.” Powell’s term as chair expires in February and Biden’s predecessors named their own Fed chairs before Thanksgiving. The only two known contenders for the chairmanship are Powell -- who is backed by Treasury Secretary Janet Yellen and Wall Street -- and Brainard, a favorite of liberal activists and some economists.
Manchin has blasted the Fed’s monetary policy multiple times this year, including in a letter to Powell this summer and in interviews. He has not backed Powell for another term when asked, instead repeatedly questioning the purchase of $120 billion a month in securities while inflation is what he calls “rampant.” The Fed announced earlier this month that it will start tapering its bond-buying program.
And with year-over-year inflation hitting a 30-year record of 6.2% on Wednesday, Manchin weighed in again.
“By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse. From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day,” he said in a tweet.
With Manchin unhappy with Powell, it’s hard to see why he’d have a warmer reaction to Brainard. She doesn’t have a record as a staunch inflation fighter because inflation wasn’t a problem during her tenure. And her speeches on the labor market give the perception that she puts a lot of weight on that side of the Fed’s mandate.
Defeating the pick for Fed chair by a president in their own party would be a difficult decision for Democrats, essentially a vote of no confidence in White House economic policy less than a year before critical midterm elections. Few Biden nominees have fallen to Democratic opposition, though Manchin helped sink Neera Tanden’s appointment to director of the Office Of Management and Budget. He’s also throttled a major Biden climate plank aimed at accelerating the transition of electricity away from fossil fuels, and remains the key holdout on Biden’s massive social spending bill.
Powell wouldn’t need Manchin’s vote. He already has the backing of a majority of Republicans on the Senate Banking Committee, per interviews with Bloomberg News. Only one Democrat has come out fully against a Powell pick -- Senator Elizabeth Warren of Massachusetts -- though not all Democrats are sold on him either, including Senator Sheldon Whitehouse, who is concerned about climate risks, and Senator Robert Menendez, who wants more diversity at the Fed.
Biden met with Brainard and Powell last week. A person familiar with Brainard’s meeting with the president said it went very well and lasted for 90 minutes.
Though Brainard was confirmed easily with 61 votes in 2014 for her current post on the Fed board, only four of the GOP senators who voted for her then are still in office: Lisa Murkowski, Susan Collins, Rob Portman and Mike Crapo.
She would also have to win over other Democrats who have a clear preference for Powell, including Jon Tester of Montana, a member of the Banking Committee who said he lobbied for Powell to White House Chief of Staff Ron Klain and is wary of a push by progressives for sweeping changes at the Fed.
Nominating Brainard would be a victory for Warren. While she hasn’t expressly endorsed Brainard or any other candidate, Warren has praised her dissents to deregulation moves under Powell in recent years — moves Warren worries will make it more likely taxpayers will have to bail out Wall Street again.
A happy Warren might in turn appeal to Bernie Sanders, the only senator who caucuses with Democrats who voted against Brainard in 2014, though he has declined to discuss Brainard or his reasons for opposing her.Some progressive advocates have opposed Brainard for other jobs because of her previous work on free trade deals, but that’s not a particularly relevant issue with the Fed.
While Powell enjoys broad support from Republicans and many Democrats for his handling of monetary policy and his response to the pandemic, his critics on the left have attacked him for acting too slowly to focus the Fed’s attention on climate.
Biden as part of his climate-change push, last summer met with financial regulators at the White House, including Powell, where they discussed their progress on climate-related risk. Many activists prefer Brainard’s preference for a more aggressive Fed role in that area.
Under Powell, the Fed Board has staffed two committees – one focused on bank supervision and the other on financial stability risk – to take a look at the climate’s potential impact on the financial system. The issue isn’t partisan inside the Fed as it is in Congress. Randal Quarles, who was appointed by former President Donald Trump and who has drawn fire from progressives, has also called for a systematic approach to data gathering on climate exposure. Quarles announced his end-of-year resignation this week.
Brainard noted in a speech last month that the cost of climate disasters over five years was $630 billion.
“The physical manifestations of climate change could increase the volatility of economic activity and slow economic growth,” she said, and signaled the Fed would move ahead with climate scenario analysis on the financial system.
Powell told reporters last week that climate is a risk that financial institutions need to manage, but also said it wasn’t the Fed’s job to decide broader climate policy.
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