The Fed chief isn’t perfect, but Jerome Powell has consistently demonstrated the most important characteristic for central bankers: independence from elected politicians.
The Fed chief isn’t perfect, but Jerome Powell has consistently demonstrated the most important characteristic for central bankers: independence from elected politicians.
J oe Biden nominated Jerome Powell to lead the Federal Reserve for another four-year term today.
Biden was facing pressure from some progressive senators, including Elizabeth Warren, Jeff Merkley, and Sheldon Whitehouse, to nominate someone else. By not giving in, Biden prized the Fed’s independence over pleasing some members of his own party. For that he deserves commendation.
If we want to have a chance at bringing inflation back down, we need a central bank that is independent of elected politicians. It’s a widely accepted finding in economics research that central-bank policy controlled or heavily influenced by elected officials will have an inflationary bias. Keeping the Fed at arm’s length from everyday politics is vital for sound monetary policy in the long term.
Biden also nominated Lael Brainard to be the Fed’s new vice chair, replacing Richard Clarida. Brainard is more amenable to progressives and was widely seen as a possible contender for Powell’s job. Sir Paul Tucker, a former deputy governor of the Bank of England and the author of the book Unelected Power, tells National Review in an email, “These appointments, very much including Lael Brainard’s, help underpin Fed independence, which could hardly be more important at this point in world history.”
By sticking with Powell at the top, Biden was also rejecting claims from others who wanted a more radical transformation of the Fed’s mission. In the New York Times, Northwestern law professor Annelise Riles urged Biden to “reshape the way we think about who should safeguard the national and global economies” by emphasizing diversity and green policy when nominating central bankers. Joshua Kleinfeld and Christina Parajon Skinner explained for Capital Matters why such a radical transformation would be a complete betrayal of the Fed’s purpose, with possible dire consequences for the global economy.
Jerome Powell is not infallible, and we could all imagine a better Fed chairman. Under Powell’s watch, the Fed’s mission creep into areas such as climate change has continued. John Cochrane explained for Capital Matters why conducting climate policy through financial regulation is improper. Norbert Michel, director of the Cato Institute’s Center for Monetary and Financial Alternatives, tells NR in an email, “The decision [to nominate Powell] is likely to have more of an impact on how aggressively the Fed pushes regulations for addressing climate change, but it’s not as though the choice of Powell over Brainard will stop the Fed from pursuing this approach.”
Powell has also been less than stellar on the inflation problem so far. It’s proving to be more lasting than he and the Federal Open Market Committee in general have predicted. As Peter Ireland and Mickey Levy wrote for the Shadow Open Market Committee in September, “The Fed’s projections of transitory inflation seem more of a hope and understate the important role monetary policy plays in the inflation process.”
There’s no such thing as a perfect Fed chairman, especially in the extraordinary economic times we are currently living through, but one of Powell’s strengths is his ability to admit when he gets things wrong and change course. In 2018, right after Powell took over, the Fed increased interest rates four times. Then, in 2019, it reduced rates, and Powell admitted it had made a mistake by raising rates too quickly. As David Beckworth wrote for the New York Times in August, “It is rare to see a Fed official, especially a chair, admit a mistake so soon after it happens. Rather than a demerit, this willingness to learn is precisely what a president facing the uncharted waters we are in would want in a central bank leader.”
Powell has also demonstrated impressive independence from politicians on both sides of the aisle. As I wrote in October, Powell was nominated to the Board of Governors by Barack Obama and made chairman by Donald Trump. He’s been attacked very publicly both by Trump and by Elizabeth Warren in the strongest terms. Yet he hasn’t let those attacks sway him on monetary policy.
By renominating Powell, Biden is sticking with someone who takes central-bank independence seriously and wants to stay above the polarized political fray. There are other people who might fit that description, but there’s only one person we know for sure fits it, given his four years as chairman in the current political environment. The economy could use some certainty right now, and keeping Powell at the helm provides some.
The Senate should confirm him with as little fanfare as possible. We don’t need a confirmation-hearing circus for Powell similar to the ones we’ve seen for judicial nominees. Senators who use this moment to grandstand would be putting their own political interests before the interests of the American economy and, by extension, the global economy, given the U.S. dollar’s status as the world’s reserve currency. In 2018, Powell was confirmed with overwhelming bipartisan support in an 84–13 vote. He should get at least the same level of support now.