❮ Return to Our Work

Blog Post | February 5, 2024

Will Jay Powell’s Cheerleaders Ever Admit They Were Wrong?

Climate and EnvironmentFederal ReserveFinancial Regulation
Will Jay Powell’s Cheerleaders Ever Admit They Were Wrong?

Soon after Biden renominated Powell, the ostensibly dovish Fed chair embarked on the most intense and sustained series of rate hikes in decades. We were told that this wouldn’t happen!

Last Monday The Sling published our analysis of why Federal Reserve Chair Jerome Powell is a climate menace. Yes, inflation is down, but Powell doesn’t deserve credit. Meanwhile, our polity and planet are in jeopardy—and he deserves a fair share of blame.

Why do we think so? First, Powell’s refusal to use the Fed’s regulatory authority to curb fossil fuel financing is putting us on a more deadly trajectory. Second, his prolonged campaign of interest rate hikes is inhibiting the greening of the economy at a pivotal moment in history. Finally, the high interest rate environment Powell has established is jacking up the price of housing, among other essentials, and thus improving Donald Trump’s 2024 electoral prospects—and a victory for Trump would be a death knell for democracy and the climate.

The Revolving Door Project led the fight against the renomination of Trump’s Fed pick. Our argument was and remains simple: A) Powell’s purported dovishness was a product of historical contingency and political opportunism, not a reflection of any principled commitment on his part to maximizing employment. B) Powell’s well-documented ethical failures and regulatory weaknesses alone should have been disqualifying.

As we stressed throughout 2021, our preferred candidates were stronger regulators and more committed than Powell to the Fed’s full employment mandate. That’s why it was so troubling when many liberals—and even some bona fide progressives—went to bat for Powell and urged President Joe Biden to tap the former private equity executive for a second four-year term. 

There’s a reason why we harped on Powell’s private equity past, including his stint as a partner at the union-busting and fossil fuel-investing Carlyle Group. Private equity firms specialize in buying, gutting, and then selling businesses at a profit. The “restructuring” that happens between the acquisition and resale of a company typically involves weakening workers’ rights, slashing operating budgets, and price-gouging customers. For us, Powell’s support for the vulturistic strip-mining of companies presaged his disinterest in the relationship between profit-maximizing practices and increased consumer costs.

Meanwhile, some commentators—Heatmap’s Robinson Meyer and neoliberal blogger Matthew Yglesias chief among them—claimed that it’s foolish for the climate left to focus so much on the Fed’s regulatory responsibilities and capacities. In their narrow (and erroneous) rendering, the central bank is essentially reducible to monetary policy and has little of consequence to do with financial regulation.

Here’s where things get really frustrating (it would be funny if the stakes weren’t so high). Just days after Biden renominated Powell, the ostensibly dovish Fed chair signaled his openness to raising interest rates, and in early 2022, he embarked on the most intense and sustained series of rate hikes in decades. We were told that this wouldn’t happen!

Even though inflation continues to decline with no corresponding uptick in unemployment, Powell and the other 11 members of the Federal Open Market Committee (FOMC) announced during last Wednesday’s meeting that they will maintain the federal funds rate at 5.33% for the fourth straight month. Powell added at the post-meeting press conference and reiterated during a 60 Minutes interview taped the following day (and aired on Sunday) that the committee is unlikely to cut rates in March. This means that real interest rates (Fed rates minus inflation) will continue to climb and therefore slow investment in clean energy and housing (which, in the medium run, increases the cost of energy and housing, thus raising medium-term inflation).

In short, the guy that Meyer and Yglesias said would be an ally in advancing Biden’s green economic agenda is actually undermining the Inflation Reduction Act’s investment incentives. How ironic.

Once Powell abandoned his full employment schtick (his May 2022 admission that he wanted to “get wages down” made clear that he prioritizes low inflation and is willing to throw millions of people out of work to suppress demand/prices), we were left with a hawk who also doesn’t care about Wall Street oversight. The March 2023 collapse of Silicon Valley Bank and Signature Bank demonstrated why we were right to sound the alarm about Powell’s fondness for deregulation.

Another claim made by Powell apologists is that the Fed chair’s regulatory deficiencies could be remedied by a strong Vice Chair for Supervision (VCS). We never bought this argument, contending instead that Biden’s VCS would play a subservient role within Powell’s Fed. Lo and behold, Powell is currently hamstringing Michael Barr’s plan to strengthen capital requirements, part of a multi-agency effort to prevent future financial crises.

As if all of this weren’t upsetting enough (vindication ≠ winning), the response to last Monday’s piece has compounded our frustration. In a misleading tweet that yielded a fair amount of positive reaction, Bloomberg’s Joe Weisenthal wrote, “It’s interesting to see this group demand apologies from Powell defenders, when one of its own favored FOMC members, has taken an even more hawkish posture, a stance by its own claims is impeding the energy transition.”

Weisenthal was referring to Raphael Bostic, president of the Federal Reserve Bank of Atlanta. But Bostic is not one of our “favored FOMC members.” To substantiate his claim, Weisenthal shared a screenshot of part of an October 2020 article in which our executive director Jeff Hauser described Bostic as a “progressiv[e] who do[es]n’t come from the financial services sector.” However, if you look at the full article, you’ll see that Hauser was calling on Biden to pick Bostic or the late William Spriggs to lead the Treasury Department.

The excerpted quote has nothing to do with whether Bostic is a dove on interest rates (we readily admit, as we have long believed, that he is too hawkish). What’s more, it has nothing to do with the Fed or FOMC. It shows the Revolving Door Project advocating for a pair of Black candidates who didn’t spend their careers on Wall Street to lead an entirely different agency.

In fact, RDP never made the case for Bostic as Fed chair. And in October 2021, we called for an investigation into his financial accounts at Morgan Stanley’s private bank (as part of a broader probe of Fed leaders). We did identify Spriggs, Lisa Cook, and Sarah Bloom Raskin as good candidates to lead the Fed back in July 2021.

We also argued that Lael Brainard would be preferable to Powell (even though we opposed Brainard for Treasury Secretary because of her poor record on trade and potential conflicts of interest related to her husband’s consulting gigs). Given that the Fed plays no role in U.S. trade policy, we see no contradiction in preferring Brainard over Powell at the central bank. We criticized her in relation to a different job. Just as one can think Patrick Mahomes is great as a quarterback but would be a dreadful defensive tackle, we organizationally tend to judge job candidates based on the job they’re up for.

To recap this fight, Powell advocates insisted that he would continue to be an anti-regulation dove while we pushed for a pro-regulation dove. Unfortunately, we have been forced to endure the worst of both worlds: an anti-regulation hawk. We don’t know for sure what Brainard would have done about interest rates in the face of persistently high prices. But we can say with confidence that she would have been, at worst, a pro-regulation hawk, and that would be a major improvement over Powell as the Basel III Endgame rulemaking process unfolds.

And considering Brainard’s solid record of supporting full employment monetary policy, maybe she would have charted a different course. For instance, Brainard might have been forthright about the fact that the Fed’s limited toolbox is ill-equipped to deal with the Covid-era cost-of-living crisis. The Fed has one tool (raising interest rates to increase unemployment and decrease demand) to tackle a problem (inflation) with many causes. 

Over the past few years, inflation has been fueled by corporate profiteering and intensified by the eradication of the pandemic-era welfare state. First, the spread of Covid and Russia’s invasion of Ukraine disrupted international supply chains that had been made increasingly fragile through decades of neoliberal globalization (the climate crisis is also playing an increasing role here). Then, corporations fortified by earlier rounds of consolidation capitalized on those crises to justify price hikes that outpaced the elevated costs of doing business. That safety-net provisions approved in the wake of the coronavirus crisis were allowed to lapse only worsened the situation.

Because the sellers’ inflation that began in 2021 is inseparable from preexisting patterns of market concentration, progressives have argued against job-threatening rate hikes and for a more pertinent mix of policies, including a windfall profits tax, more robust antitrust enforcement, and targeted price controls. Unlike the dull weapon that Powell has been wielding ineffectively, those tailored solutions—the last two of which are within the Biden administration’s remit—have the potential to dilute the power of price-gouging corporations without harming workers.

If all you have is a hammer, everything looks like a nail. Apologies for the consecutive proverbs, but there’s more than one way to skin a cat.

The above photo of Fed Chair Jerome Powell is a work of the U.S. federal government and in the public domain.

Climate and EnvironmentFederal ReserveFinancial Regulation

More articles by Kenny Stancil

❮ Return to Our Work