In the last few months, Revolving Door Project has been quite public about our opposition to renominating Jerome Powell for a second term as Chair of the Federal Reserve. (Here’s my piece in The American Prospect, a piece with my colleague Eleanor Eagan in MarketWatch, and some more of Eleanor’s work on the Fed.) This has prompted plenty of pushback, some in good faith, and some not. The pro-Powell side has consistently challenged us to say who we want to replace him with, if we think he’s not the man for the job.
In general, RDP tries not to endorse candidates. Our role is to say what no one else in the public-interest ecosystem can, which means we try not to attach our name to anyone seeking power, in case we might need to criticize them down the road. (Also, some power brokers in the Biden administration find us so annoying that our endorsement might actually be bad for some candidates.) That said, this is a fair point by the pro-Powell camp, and rules of thumb were made to be broken. None of the following should be too surprising, and of course, it represents only the views of RDP, not any other Powell critics.
The most widely-named alternative to Powell is current Fed governor Lael Brainard, who some have claimed we can’t possibly support since we opposed her campaign to become Treasury Secretary last winter. But our opposition to Brainard as Treasury Secretary hinged primarily on her poor record on trade issues — and her husband’s consultancy for firms looking for influence on China/U.S. relations in particular — as well as a lackluster effort on climate issues at that point.
Unlike the Treasury, the Federal Reserve has no role in U.S. trade policy, so that’s irrelevant here. And Brainard has taken some better steps on climate in the intervening months, but remains deferential to industry. So, of the two main policy areas which the Fed directly impacts, Brainard is excellent on monetary policy, and passable on financial regulation. She’s certainly better than Powell, and has shown willingness to work with voices to her left. Therefore, while we ardently hope Brainard would further expand her circle of influence to more racial justice and climate finance voices, we would certainly prefer Brainard assuming the chairmanship over a Powell renewal.
That said, there are better options on the table for both Chair and the Vice Chair for Supervision, the key financial regulatory role.
In particular, we would strongly support Michigan State University Professor Lisa Cook as Chair. Cook, who has been endorsed by Senator Sherrod Brown, is a strong supporter of full employment policies, and has testified against deregulatory proposals. Moreover, not only would she be the first Black woman on the Fed, but Cook in particular has conducted research and argued persuasively that a lack of racial and gender diversity within the profession has colored the questions which economists do and don’t ask or take seriously. One of the most important “soft” roles of the Fed is as an incubator for economists — many of the most influential economists of a given generation can trace their careers back to time on staff at the Fed. A Cook-led Fed would not only centralize factors like Black unemployment and the racial wealth gap in setting policies, it might work to set the economics profession up for broader and deeper research in years to come — not just on issues of race and gender, but in reassessing its priors on any number of questions. That should be a goal which anyone opposed to the Washington Consensus of the 1990’s can get behind.
It’s also wild that almost seven months into the new administration, Sarah Bloom Raskin still lacks a job. There might be no one better suited to lead the Fed’s too-long-delayed work to purge the financial system of systemic risks caused by climate change. Bloom Raskin is also a principled fighter against income inequality, meaning she’ll vote to keep monetary policy dovish and consumer protections strong. She was rumored as a candidate for Treasury Secretary, then as a candidate for a climate-focused job within Treasury, which eventually went to an industry ally. She’s too skillful and too passionate for the Biden team to leave on the sidelines. It’s especially absurd to think that Powell would be a better nominee.
Finally, AFL-CIO economist William Spriggs should be on any Biden shortlist for Fed nominees, including for the chairmanship. Spriggs is on the record supporting Powell, but he would naturally be a worker advocate on monetary and regulatory policy — and Powell’s decades at the Carlyle Group, a private equity firm, links him to many anti-union abuses. (For what it’s worth, private equity is also the part of the financial industry which benefits the most from low interest rates. That’s not at all an argument to raise rates — dovish monetary policy is profoundly moral and economically correct. It’s merely some context for what might be driving at least some of Powell’s own thinking.)
While we’re laying all of our cards on the table, let us note that we won’t be pacified if Biden appoints a strong Vice Chair for Supervision, but keeps Powell as Chair. No matter what regulatory policies the Vice Chair for Supervision proposes, they have to be brought to a vote to be enacted, and the Chair decides what gets brought to a vote. That’s part of why Powell is just as responsible as Randal Quarles for the Fed’s copious Trump-era deregulations — Quarles couldn’t have done anything if Powell didn’t aid and abet him.
If Raskin, Cook, or Spriggs are made Vice Chair for Supervision as a concession to financial reformers, while Powell retains the chairmanship, that would be like making Senator Brown the chair of the Senate Banking Committee while Mitch McConnell is the Majority Leader. No matter how good Brown’s bills might be, they don’t amount to anything if the Majority Leader never takes them to the floor.
Oh, and the Fed Chair manages the staff at the Federal Reserve. Can you imagine Sherrod Brown as a committee chair with committee staff answerable, ultimately, to Mitch McConnell?
Anyone telling you that Fed Governors are far too principled and apolitical to deploy such levers of power is either naive, deluded, or lying. No matter how much ivory-tower academics might wish it otherwise, powerful people simply are not motivated, first and foremost, by a higher civic calling. It’s not true of the Congress, it’s not true of the Supreme Court, and it’s not true of the Fed.
With that in mind, as we’ve argued from the get-go, it’s important for Biden to not settle for Powell merely because he’s been strong on monetary policy in the last few years. Biden can choose someone more deeply devoted to full employment, and who doesn’t push him into a false choice between being strong on monetary policy and strong on regulatory policy. The President can have his cake and eat it too here, so he should. Because if he doesn’t, it’s average people who will suffer the most.