Biden’s Fed Appointments Should Send a Message
(Bloomberg Opinion) -- President Joe Biden faces a monumental decision: Whom to appoint to three top positions at the U.S. Federal Reserve, one of the world’s most powerful economic institutions. He should recognize it for the opportunity it is -- to reassert the Fed’s independence, to ensure the resilience of the financial system and to make the central bank’s leadership look more like the country it serves.
Two key openings will present themselves on Jan. 31, when two officials’ terms draw to an end: Jerome Powell’s as chair and Vice Chair Richard Clarida’s as a Fed governor. Also, the position of vice-chair in charge of bank supervision has been open since Randal Quarles completed his first term last month. So how should the Biden administration fill these vacancies?
Let’s start with Powell. The debate over whether to reappoint him has become far too partisan. To support and show respect for the Fed’s independence, Biden should conspicuously focus on Powell’s record, not on his historical party affiliation. That record has at least one distinct blemish: The Fed’s easy-money policies of the past year have unduly increased the risk of a protracted period of excessively high inflation. Still, Powell’s accomplishments outweigh his errors. For one, his extraordinarily aggressive and effective policy response during the onset of the coronavirus pandemic in 2020 prevented what could have been a devastating financial crisis, on top of the public health crisis. Also, he presided over a strategy revamp that, in the longer run, will allow the Fed to manage the economy to the benefit of more Americans.
The position of vice-chair for bank supervision is particularly important due to the unraveling that the Fed has allowed in recent years. Quarles facilitated a dangerous weakening of the safeguards put in place after the 2008 financial crisis, including capital requirements and stress testing. Biden needs to appoint someone who will undo the damage. The best candidate is current Fed governor Lael Brainard, who has publicly and repeatedly objected to the deregulation. And Powell should be reappointed only if he publicly avows to grant Brainard the leeway she will needs to do the job (as Chair Ben Bernanke did with Governor Daniel Tarullo, who oversaw banks until his resignation in 2017).
The end of Clarida’s term represents an opportunity to add much-needed racial diversity to the Fed’s leadership. Since 1935, there have been only three Black members of the Board of Governors. Biden should move toward correcting this by appointing current Atlanta Fed president Raphael Bostic. As I’ve pointed out before, Bostic’s qualifications — a Stanford PhD, a long and distinguished track record in academia and public policy — far exceed that of many governors who have preceded him. He also has a well-established perspective on racial injustice that should be represented and heard on the Board.
These choices — Powell, Brainard, and Bostic — would send a clear message: The Biden administration is committed to an independent and vigorous Fed, and sees inclusiveness as a key element of effective leadership in our key public institutions.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.
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