President Joe Biden’s choice for Federal Reserve vice chair will signal where he stands on combating inflation — and whether he agrees with restive progressives worried that the central bank’s rate increases will lead to job losses and recession.
(Bloomberg) — President Joe Biden’s choice for Federal Reserve vice chair will signal where he stands on combating inflation — and whether he agrees with restive progressives worried that the central bank’s rate increases will lead to job losses and recession.
It’s a familiar dilemma for the president, who has had to choose between pleasing progressives and getting broader bipartisan backing in his past Fed picks. This time, however, the political stakes are higher as Biden prepares to mount an expected reelection bid where the economy and persistent inflation will be a central issue.
For Biden’s first round of Fed picks, progressives pushed for nominees who would transform the central bank on regulatory policy, including a focus on the financial risks of climate change. But the economy has shifted since then, and the left is focused squarely on monetary policy as Biden seeks to fill the opening created when he tapped Lael Brainard last month to be his chief economic adviser.
Senator Elizabeth Warren wants Biden to select a vice chair to counter Chair Jerome Powell, who she says “has made clear that he will take extreme steps on interest rates and he’s willing to put millions of people out of work.”
Since inflation hit 40-year highs last year, Powell and his team have raised rates rapidly from zero to a range of 4.5% to 4.75%, including four jumbo 0.75 percentage point increases. Recently, he’s asserted that the booming labor market needs “some softening” if the Fed is to tamp down inflation — a stance progressives view as dangerous and unnecessary.
“If the Fed keeps pushing these extreme interest rate hikes, they can tip this whole economy off an economic cliff,” Warren, a Massachusetts Democrat who opposed Powell’s renomination in November 2021, warned this week.
But Powell, who will testify before Congress next week, continues to enjoy support from Republicans and moderate Democrats. Democrats have a one-seat majority in the Senate, so Biden either must keep most of the party together or select a nominee who can appeal to Republicans, as he did with Powell’s own renomination.
Biden’s Choices
Two names on Biden’s shortlist — Karen Dynan of Harvard and Janice Eberly of Northwestern — represent a hawk v. dove choice, Bloomberg Chief US Economist Anna Wong wrote in a research analysis.
Dynan said last year that recession and “considerable” increases in unemployment would likely be needed to tame inflation. She would become one of the most hawkish — inclined toward tighter policy — members of the rate-setting Federal Open Market Committee, Wong projected.
“Eberly, on the other hand, might be closer to Brainard in her optimism that the Fed can get inflation back to target without generating a significant slowdown in the labor market,” Wong wrote.
Progressives so far aren’t publicly campaigning for anyone.
Robert Kuttner at the progressive American Prospect last week urged Biden to reject both Eberly and Dynan, as well as another shortlist name, Chicago Fed President Austan Goolsbee. Kuttner instead suggested choosing someone with less conventional views on inflation.
“Appointment of a dissenter would usefully break the Fed norm of iron consensus, and maybe even free the economy from a needless recession — on the eve of Biden’s reelection campaign,” Kuttner wrote.
Other candidates under serious consideration include San Francisco Fed President Mary Daly and Morgan Stanley Chief Global Economist Seth Carpenter, people familiar with the process have said.
The White House has declined to comment on the candidates. White House Press Secretary Karine Jean-Pierre said Wednesday that Biden considers filling the post a priority. “We hope to have something to share in the near future,” she said.
‘Diversity of Thought’
While Warren and another progressive, independent Bernie Sanders of Vermont, said they’re worried the next pick could focus too much on inflation at the expense of workers, Banking Chair Sherrod Brown has been more guarded.
The Ohio Democrat, whose committee will consider the nominee, said he wants “diversity of thought.” Like Warren, Brown wants “a real emphasis on the dual mandate, not just the single emphasis on interest rates, inflation.”
Republicans warn against politicizing the Fed.
“This is the last organization at the tip of the spear for getting inflation under control, and we can’t be doing it with the kind of politics we play in this chamber,” said Senator Thom Tillis of North Carolina, a Republican member of the Banking Committee.
Moderate Democrat Jon Tester of Montana, an early backer of Powell, likewise stressed the need to keep the Fed independent.
“I felt that way when Trump was in office, and I feel that way when Biden is in office,” he said. “If we start mucking around, saying don’t do this interest rate raise or lower interest rates, I think you’re playing with fire.”
Biden has also been urged by Senator Robert Menendez and others to nominate the first Latino governor in the Fed’s history, with 34 lawmakers signing a letter last week calling for such a trailblazing appointment. Menendez said the administration is vetting some of his suggested picks but it would be “a slap in the face” if one isn’t picked.
Brown said he’s also talked to Biden and Menendez about the push for more diversity.
“I want to continue the diversity of this,” he said. “For the first time, there is more than one person of color on the Fed. I think that trend is good. I want to continue it.”
–With assistance from Laura Litvan, Josh Wingrove, Craig Torres and Jennifer Jacobs.
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