Powell’s Odds for Second Term Boosted by Yellen’s Backing 

Jerome Powell, chairman of the U.S. Federal Reserve at a hearing in Washington. (Photographer: Susan Walsh/AP Photo/Bloomberg)

Powell’s Odds for Second Term Boosted by Yellen’s Backing 

Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

U.S. Treasury Secretary Janet Yellen has told senior White House advisers that she supports reappointing Jerome Powell as Federal Reserve chair, according to people familiar with the matter, a move that greatly increases his chance for a second term.

President Joe Biden hasn’t made a decision yet and is likely to make his choice around Labor Day, the people said. Keeping someone viewed by Wall Street as a trusted policy maker in charge of the world’s most powerful central bank would send a signal of continuity as the economy recovers from the pandemic.  

With Powell’s four-year term ending in February, the White House has been casting a wide net for possible candidates, according to people familiar with the deliberations. Advisers have been examining the public speeches and comments of potential contenders to consider, paying special attention to views on the labor market, they said.

But uncertainty over the economic impact of a surge in coronavirus cases fueled by the delta variant may trigger more caution about changing the leadership at the Fed, two of the people said. All of the people spoke on condition of anonymity to discuss a personnel matter, and the White House and Treasury Department declined to comment.

Yellen’s backing gives Powell an enormous boost: Her almost two decades of experience at the Fed, including four years at its helm, make her counsel to Biden valuable. She also has experience working directly with Powell, who served as a governor at the Fed from 2012 until being elevated to the chair in 2018 when then President Donald Trump passed over Yellen for her own second term. 

For Powell and his backers, including Republican lawmakers and many on Wall Street who view him as a steady pair of hands, Yellen’s support comes at an important time. Powell will deliver a much-anticipated speech on Friday for the Kansas City Fed’s annual Jackson Hole symposium, possibly signaling when and how the central bank is likely to begin withdrawing some of its extraordinary support for the economy. 

Inflation Politics

Keeping a Republican Fed chair could also help the White House blunt GOP efforts to use rising prices to attack Biden and his spending plans. Powell has so far agreed with the White House’s position that the recent jump in U.S. inflation is transitory.

Critics, including Republicans and even some Democrats, have said the Fed is at risk of letting inflation get out of control for the first time in more than 30 years. They have urged Powell to begin pulling back on the Fed’s massive bond purchases, which help stimulate the economy by suppressing long-term borrowing costs.

Powell, however, hasn’t wavered. While promising to monitor price movements closely, he has stuck by the prediction of many economists, including Fed staff, that price spikes associated with the pandemic will fade over time and the Fed should be patient in withdrawing support from a still-vulnerable economy.

The virus surge in the U.S. is still fueling uncertainty as the Fed plots its monetary policy path. While interest rates are expected to remain near zero at least well into next year, several Fed officials have indicated eagerness to begin reducing the size of monthly bond purchases this year. Powell has promised to avoid surprising markets with that eventual move. 

Powell Critics

While many senior Democrats have praised Powell, unified Democratic support isn’t a foregone conclusion. Senators Sherrod Brown and Elizabeth Warren have declined to say whether they would back him for another term, with both criticizing Powell’s handling of financial regulations on issues like bank-stock buybacks.

The Biden administration has been studying the speeches and commentary of Fed governor Lael Brainard, a Democrat whom Biden considered for Treasury secretary last year. She’s seen as a more liberal nominee who hews closer to Biden’s economic agenda and is far more of a hawk on banking regulations. 

Brainard would be likely to keep Democratic senators like Warren and Senate Banking Committee chair Brown happy. Yet that would set up a bruising confirmation fight -- potentially even a 50-50 vote in the Senate with Vice President Kamala Harris the tie-breaker.

Several other openings are pending on the governing board, giving Biden a chance to put his stamp on the Fed and remake it after Trump’s five picks.

Besides Powell, Biden must also replace the vice chair for supervision, who oversees bank regulations, a position now held by Randal Quarles; the vice chair, a post now held by Richard Clarida, and an open seat on the Fed board, left vacant when Judy Shelton, a Trump nominee, failed to win Senate confirmation. 

The Biden administration’s efforts to address rising prices show the extent to which inflation -- an economic phenomenon that barely registered in American politics for 40 years -- represents a vulnerability in the 2022 midterm elections.

The most recent readings remain elevated: the consumer price index rose 5.4% in the 12 months through July, though it fell from the previous month for the first time since November.

The concerns revealed themselves last week when data showed that consumer sentiment fell in early August to the lowest level in almost a decade by one measure and U.S. retail sales fell in July by more than forecast. 

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.