Jerome Powell's term as chair of the Federal Reserve doesn't end until next February, but the handicapping of his reappointment has already begun. A recent poll by the Wall Street Journal found that three-quarters of economists it surveyed believe Powell will be renominated by President Biden, but I would argue that the odds are at best 50-50, if not lower.
Powell has unquestionably been friendly to the financial markets, which counts in his favor on Wall Street, but that may be a detriment when it comes to the progressives who are likely to have the biggest voice in choosing the next Fed chair. Right off the bat, Powell checks off none of the boxes that progressives are looking for, and as he has shown since his inauguration, Biden almost never goes against what they want.
Let’s look at Powell’s negatives: He's a white male. He's a Republican. He comes from Wall Street. He's rich (although most people at this level are). Let's also not forget that Powell was nominated to his position by President Trump, which automatically disqualifies him in the eyes of many, never mind the constant barrage of criticism Trump leveled at him once he was seated.
Just the taint of being associated with the former president should be enough to make him unsuitable for another term.
More importantly, however, Powell has not publicly bought into the prized objectives of the left, namely using the Fed to further social policy (i.e., wealth redistribution) and climate change initiatives, asserting that those are political decisions better left to Congress.
As we discussed last year before the election, one of the items on the Democrat Party’s platform, written by Bernie Sanders, was to turn the Fed into an unelected instrument of leftist social change. That was not just political meat thrown to the Democrat base. Since his election, Biden has shown no reluctance to turn those wishes into administration policy. Make no mistake, under Biden; the Fed is going to be very political.
Another key role the Fed already plays, but usually ignored by the financial markets, is bank regulation, and on that score, Powell has to be considered a failure in the eyes of progressives.
While not the biggest champion of rolling back many of the constraints in the 2010 Dodd-Frank designed to limit risk-taking by banks, which many believe were one of the main causes of the 2008 global financial crisis, Powell also hasn’t opposed them; he has in fact presided over them. That does not sit well with Sen. Sherrod Brown of Ohio, the chairman of the Senate Banking Committee, and Sen. Elizabeth Warren of Massachusetts, who took Powell to task recently at a committee hearing for his record on easing regulation. It’s a little hard to see either of those two voting for Powell, given that they probably have other objections, including those enumerated earlier.
Powell’s isn’t the only seat on the Fed that comes up for renewal next year. Vice-Chair Richard Clarida’s term is also set to expire in February, and in October, Randal Quarles’s four-year term as vice chairman of bank supervision is set to end. So Biden has a huge opportunity to reshape the Fed to his liking and to those who put him in the Oval Office, and he will likely try to make the most of it.
According to the Journal and other financial publications, current Fed governor Lael Brainard is seen as the favorite to replace Powell. She ticks off lots of boxes that the progressive are looking for. In addition to being a woman, she was appointed to the Fed by President Obama, and she’s been one of the strongest voices, sometimes the only one, on the Fed board of governors arguing against easing bank regulation and urging financial institutions to do more about climate change.
So as an investor, what can you expect from a post-Powell Fed, one either headed by Brainard or someone of a similar mindset?
Monetary policy will still be a very important Fed function, of course, although it’s likely to share a seat with the social issues enumerated here. As I noted in my column last week, the Fed will be around for years and years in order to help finance enormous federal deficits needed to fund progressive programs. That's not going to change, so as an investor, you should be assured of easy money and low-interest rates as far as the eye can see.
However, don’t expect the Fed to come running to the rescue every time the market dips or looks a little shaky, as the Powell Fed has reliably done during its tenure. That means we can probably expect more volatility in the financial markets. The Fed has a much larger agenda now, and protecting investors from market risks won’t be one of its priorities, not that it should be.
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INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
One thought on “Looking Past Powell”
Does it matter anymore who sits as Fed Chair? The pandemic saw a defacto merger of the Treasury and Federal Reserve, and no one in DC said boo about it. The Fed dipped it’s toe into buying everything, even junk debt, and those generous loans were very popular with anyone planning share buybacks or M&As. Treasury can run any deficit it wants and the Fed will buy “whatever it takes” to keep the bean counters happy. I wouldn’t be too surprised if Hunter Biden ends up running the Fed.
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