The chair of the Federal Reserve has one of the most powerful economic jobs in the world, with the ability to move markets with a single phrase.
Under Jerome Powell's leadership, the Federal Reserve has been instrumental in steering the economy from the depths of the pandemic in a quest to claw back the 22 million jobs that were lost.
Now, President Biden has to decide whether Powell should keep his own job. It's a decision that has gotten more complicated as some progressives such as Sen. Elizabeth Warren, D-Mass., wage a fight against his reappointment as a stock trading controversy dogs the Fed.
Here are some key questions as Biden decides what to do.
What's the choice Biden faces?
Powell's four-year term as Fed chairman is set to expire in February. Traditionally, U.S. presidents have not changed Fed leaders, even when the party in control of the White House changes.
That's meant to insulate the central bank from partisan politics. But former President Trump ignored that tradition when he dumped then-chair Janet Yellen and nominated Powell in 2017 (Yellen is now the country's Treasury secretary).
What has Powell's tenure been like?
Before the pandemic, Powell was steering an economy near full employment. The Fed raised interest rates, a decision that made Powell a frequent punching bag for Trump, who worried it would slow down the economy and hurt the then-president's reelection prospects.
But once the pandemic struck, the Fed quickly slashed rates to near zero to support the economy. Powell launched a series of emergency lending programs and pumped trillions of dollars into the economy in an effort to avert a long recession and speed the recovery. He has been especially focused in recovering the lost jobs.
Some of those efforts fell short, but Powell has generally received high marks for his economic stewardship.
Lately, however, Powell has come under scrutiny as inflation continues to stay high. Powell has argued that the surge in price pressures will prove "transitory" as pandemic-related disruptions to the supply chain ease.
But some economists worry that inflation could prove harder to reverse.
What do Powell's critics say?
Some of the arguments against Powell have less to do with interest rates and monetary policy than another vital function of the Fed: supervising banks.
Sen. Warren, who sits on the Senate Banking Committee, is one of Powell's most outspoken critics. She accuses him of watering down the banking regulations that Congress adopted after the financial crisis.
"Over and over, you have acted to make our banking system less safe," Warren told Powell during a committee hearing last month. "And that makes you a dangerous man, to head up the Fed."
Former Sen. Chris Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., who authored the banking regulation law, have defended Powell and said he deserves a second term.
Still, Warren and other progressive Democrats want Biden to replace Powell with someone else. A top alternative candidate is Lael Brainard, a member of the Fed's board of governors who was appointed by former President Barack Obama.
Most recently, critics have also faulted Powell over allegations of unethical trading activity by other top Fed officials.
The Wall Street Journal and Bloomberg reported last month that two regional Fed bank presidents were actively trading stocks and other securities in 2020 while the Fed was heavily involved in financial markets.
In addition, a Fed vice chairman sold bonds and bought stocks worth at least $1 million just days before the Fed announced an emergency rate cut.
All three men have defended their trades as permissible under existing ethics rules. But Powell has acknowledged those rules need tightening, and he has ordered a review of the trades by the central bank's inspector general.
Why is this decision so important in today's economy?
It's a critical time for the economy, and whether it's under Powell or somebody else, the Fed will be navigating a policy minefield.
Job growth has slowed sharply in the past two months as the delta variant of the coronavirus hit the economy after strong job gains over the summer.
Fed policymakers are preparing to gradually scale back the amount of money the central bank is pumping into the economy, but they don't want to move too quickly and see the recovery stall out.
As chairman, Powell has steered the central bank toward a policy that is more committed to full employment, even if that means tolerating somewhat higher inflation in the short run.
However, he has stressed that the Fed will use its tools (namely, higher interest rates) to crack down if prices appear to be spiraling out of control.
It's doubtful that an alternative nominee would be any more aggressive when it comes to promoting jobs or keeping interest rates low. Any policy differences are more likely to revolve around things like bank regulation and the Fed's role in battling climate change.
What are the politics at play?
Powell would almost certainly win bipartisan backing in the Senate for a second term, while a more progressive-friendly nominee might face a tougher battle.
Biden has to weigh how much blowback he's willing to tolerate from the left wing of his party and how much political capital he wants to spend pushing a Fed nominee through the Senate.
Additionally, Biden is likely to take heat from Republicans over inflation next year if rapid price hikes continue through the midterm election.
Having a Republican like Powell in charge of the Fed — which is the government's primary inflation watchdog — could give the White House a measure of political cover at a time when Republicans are using surging prices as an attack line heading to the 2022 midterms.
OK, so how likely is Powell to stay on as Fed chairman?
Oddsmakers say Powell is still the prohibitive favorite to be nominated for a second term, but his chances are not quite so high as they were in early September.
The White House has not said when it will make a decision, but previous presidents have typically made the call no later than November, to allow time for Senate confirmation.
SCOTT DETROW, HOST:
The chairman of the Federal Reserve has one of the most powerful economic jobs in the world. They can move markets with a single phrase. Under Jerome Powell's leadership, the Fed has been extremely active during the pandemic, helping to speed the recovery of more than 17 million jobs. Powell's term is set to expire this winter. And now President Biden has to decide whether or not the Fed chairman will keep his job. NPR's chief economics correspondent Scott Horsley joins us now. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Scott.
DETROW: So what are the odds here that Powell stays on as Fed chair?
HORSLEY: Well, they're reasonably good. On Powell's watch, the Fed has been aggressive about slashing interest rates, setting up an array of emergency lending programs, pumping out trillions of dollars in an effort to prop up the economy. Some of those efforts have fallen short. But the Fed chairman is getting generally high marks. What is more, there is a tradition in the country of not changing Fed leaders even when the party in control of the White House changes. That's a way to insulate the central bank from partisan politics. Now, former President Trump ignored that tradition when he dumped Janet Yellen as Fed chair and replaced her with Powell. But oddsmakers think Biden will honor the tradition and stick with Powell even though it's not quite as much of a lock as it was, say, a month ago.
DETROW: Yeah. You know, I was covering the president on Friday. Another reporter asked about Powell's future. And Biden did not answer. He joked, It's been nice talking with you. So why isn't this a lock? And why is the president staying guarded so far?
HORSLEY: Well, Powell does have his critics, especially among progressives like Massachusetts Senator Elizabeth Warren. She sits on the Senate Banking Committee. Warren accuses Powell of watering down some of the bank regulations that were put in place after the financial crisis, and says she will oppose his nomination for a second term
(SOUNDBITE OF ARCHIVED RECORDING)
ELIZABETH WARREN: 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.
HORSLEY: Now, that argument has not necessarily gotten a lot of traction. Even the authors of the Bank Regulation Law passed after the financial crisis have defended Powell and said he should get a second term. But more recently, Powell's critics have seized on another controversy, which has just recently come to light, this one involving allegations of unethical trading by some other Fed officials.
DETROW: Yeah. What's going on with that story? Explain a little more.
HORSLEY: Yeah. The Fed as an institution has been scarred by these reports initially in The Wall Street Journal and Bloomberg that two regional Fed bank presidents, as well as a Fed board member, were actively trading stocks and other securities last year at a time when the central bank was, you know, super involved in financial markets. All three men have defended their actions. But the two regional bank presidents have retired. And Powell has called for an inspector general's review, as well as stricter ethics rules going forward. Critics say Powell has not gone far enough. And they are using this as another argument for why Biden should choose another nominee. Progressives would prefer to see someone like Lael Brainard, who's a Democrat, as chair. She currently serves on the Fed's board of governors. And she's viewed as possibly more aggressive on things like bank regulation and climate change.
DETROW: Scott, you are spending a lot of your time explaining to listeners how delicate and, frankly, weird the economy is right now.
DETROW: How does that affect the president's thinking, because everything is so fragile?
HORSLEY: Yeah. This is a sensitive time. You know, job growth has slowed sharply in the last couple of months. But consumer prices are still climbing. For the Fed, which tries to promote full employment and keep inflation under control, this is a real minefield. One political consideration for Biden is he's likely to get a lot of heat from Republicans about inflation next year if price hikes don't settle down by then. Having a Republican like Powell in charge of the Fed could give the White House a little bit of political cover. As chair, Powell has pushed a policy that says interest rates should stay near zero until the country is back to full employment.
DETROW: That's NPR's chief economics correspondent Scott Horsley. Thanks, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.