With time ticking down on his term as chairman of the U.S. Federal Reserve Board, Jerome Powell’s reappointment to the post looks less certain than it did just a few weeks ago, as left-leaning Democrats hammer away at a series of scandals involving senior Fed personnel.
On Monday, Powell’s chief antagonist in Congress, Senator Elizabeth Warren, released a letter to the head of the Securities and Exchange Commission asking the agency to investigate “ethically questionable” securities transactions by the presidents of two of the Federal Reserve’s district banks, and the Fed Board’s vice chairman.
The letter came less than a week after Warren castigated Powell during a Senate Banking Committee hearing over what she sees as his lax regulatory approach toward large financial institutions.
“Your record gives me grave concerns,” Warren said, addressing Powell directly at the hearing. “Over and over, you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed. And it’s why I will oppose your renomination.”
Renomination still likely
Powell’s four-year term as leader of the U.S. central bank will expire in February, and it has been broadly assumed that President Joe Biden would renominate him to another term. Experts say they still expect Powell to be renominated but feel less certain of that outcome than they did a few weeks ago.
“I think he’s much more likely than not (to be renominated),” David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, told VOA. “But it did move the needle a little bit, and not in his direction.”
“I still think it’s reasonable to assume that Powell is renominated, because he has enjoyed, for the most part, bipartisan support,” Mark Hamrick, senior analyst and Washington bureau chief for Bankrate.com, told VOA.
“The Federal Reserve was relatively quick in responding to the dire financial conditions that were created by the pandemic lockdowns, and it fairly effectively and fairly quickly restored order to markets,” he said.
However, the questionable investing by Fed officials on his watch may be eroding what had been substantial support for Powell, even among generally progressive Democrats.
In a note to clients last week, Karen Petrou, managing partner of Federal Financial Analytics, wrote, “One of Mr. Powell’s strengths in the renomination battle has been divisions among Democratic progressives, making this resonant scandal particularly costly to his otherwise-strong position within the Biden Administration.”
Last month, the Fed announced an investigation of the central bank’s ethics policies after reports surfaced that the presidents of the Federal Reserve Banks of Boston and Dallas had been actively trading in the stock market and in real estate at the same time that they were helping to set the nation’s monetary policies. Both said their investment activities complied with all applicable laws and Fed guidelines, and both announced their retirement on September 27.
On Friday, Bloomberg reported that Federal Reserve Board Vice Chairman Richard Clarida bought between $1 million and $5 million in stock the day before Powell made a major speech on efforts to help the U.S. economy recover from the pandemic.
When Bloomberg reported Clarida’s trading activity, the Fed issued a statement sayingthe transactions were part of a “a pre-planned rebalancing to his accounts” that were pre-cleared by the Fed’s ethics officials, and that the timing was coincidental.
Powell addressed the trading activity of the two bank presidents during congressional hearings last week, noting that while the trading activity was technically within the rules established by the Fed, the appearance of the activity was “just obviously unacceptable.”
“[T]he problem is that the rules, the practices and the disclosure needs to be improved,” Powell said during congressional testimony, adding, “We will rise to this moment.”
In her letter to the SEC, Warren called out Powell by name.
“It is not clear why Chair Powell did not stop these activities, which corrode the trust and effectiveness of the Fed. The Fed officials’ trades clearly run afoul of Fed guidelines stating that officials should ‘avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the System, and the public interest,'” she said.
While Warren may not ultimately succeed in derailing a renomination of Powell, a Republican who was appointed to his first term by former President Donald Trump, her efforts may still have a major impact on the Fed. The Biden administration has a number of important central bank appointments to make, in addition to the chair.
‘Personnel is policy’
“She’s clearly using this as a way to make it difficult for the administration to reappoint Powell,” Wesel said, adding, “It’s pretty clear that the Biden White House cares a lot about what Elizabeth Warren thinks. And it’s pretty clear that Elizabeth Warren has figured out that personnel is policy.”
The Federal Reserve Board is made up of seven governors who are appointed by the president and serve overlapping terms of 14 years each. From among the sitting board members, the president also appoints the Fed’s chair, vice chair, and vice chair for supervision to four-year terms.
There is currently one empty board seat, and another will open up when Clarida’s term expires in January. The four-year-term of the current vice chair for supervision will end October 13.
Warren and others on the left have made it clear that they would prefer to see sitting Fed Governor Lael Brainard replace Powell as Fed chair. But if Biden were to make her the vice chair for supervision and promise to add more left-leaning members to the board, that might help assuage their concerns about a Powell reappointment, according to analysts.
“There’s going to be some horse trading around this,” said Jesse Van Tol, president of the National Community Reinvestment Coalition. “I can still see a scenario where the administration decides it’s in their interest to trade to get a few other Fed governors confirmed and leave Powell in place, if they believe they can trust him and work with him.”