Accused of being a "dangerous person" by democratic progressives, is Powell re-elected Fed chairman still playing?

Reporter | Wang Pinda

When Fed Chairman Jerome Powell testified before Congress on September 28, Democratic Progressive Senator Elizabeth Warren expressed opposition to his re-election as Fed chairman and accused him of being a "dangerous person" in person. That casts a shadow over Powell's prospects for re-election.

Warren first listed the "three major crimes" of Powell's tenure: first, the relaxation of bank stress tests and the removal of regulators' power to restrict stock repurchases and dividends; second, the relaxation of the "Volcker Rule" that restricts banks' support of family-owned funds, which led to a $10 billion loss in the global banking sector after the hedge fund Archegos blew up in March this year; and third, the relaxation of liquidity requirements.

Warren then made it clear that if the White House nominated Powell for a second term as Fed chairman, he would vote against it. "Nominating you again means making a big gamble that the U.S. economy will not fall off a cliff again in the next five years with a Republican majority within the Fed and a Republican chairman who has repeatedly voted to ease regulation of Wall Street." Warren said.

Warren argues that Powell's constant deregulation risks a repeat of the 2008 financial crisis in the U.S. economy, which has not yet occurred because of his "good luck." Warren also told Powell bluntly: "As Fed chairman, you are a dangerous person. ”

Powell responded that he did not believe the Fed had eased the stress test or that the Volcker rules had anything to do with archegos blowouts, but agreed to revisit them.

Powell has been Fed chairman since February 2018, and his term expires in February 2022. Appointments to the Fed's chairman and governors are subject to presidential nomination and senate vote. The White House has not yet decided whether to nominate Powell for a second term as chairman. A White House spokesman did not comment specifically on Warren's statement, saying only that President Biden was in discussions with his economic team to appoint the next Fed chairman in time.

The first two years of Powell's current term coincided with Trump's presidency, and Powell faced the obedient Trump and better maintained the independence of the central bank. The last two years of Powell's tenure coincided with the COVID-19 pandemic, when he aggressively rescued the market during the pandemic and made bold changes to the Fed's monetary policy, notably changing the Fed's inflation target to average inflation targeting last August, allowing inflation to rise above the 2% target for a period of time.

These resumes have led Biden's economic team, as well as many economists from both parties, to support Powell's re-election as Fed chairman. However, progressives in the Democratic Party have opposed Powell's re-election since earlier this year, arguing that his attitude toward financial regulation is too relaxed, and asking Biden to nominate a Fed chairman who is more in line with the regulatory, climate, economic and other areas of the progressives.

Warren's latest statement gave the progressives a big boost. Warren is one of the leaders of the Democratic progressive faction and an expert on financial regulation within the Party, and also ran in the 2020 Democratic presidential primary and briefly finished second in the polls. As a result, Warren has a lot of influence within the Democratic Party.

That could force Biden and his team to consider Warren and the voices of the progressives behind him when deciding on the next Fed chairman, and cast a shadow over Powell's prospects for re-election.

At present, in addition to the imminent expiration of Powell's presidency, the Fed has a number of senior officials who are leaving office. Vice Chairman Richard Clarida's tenure as Fed governor will end early next year, and the term of Vice Chairman for Financial Regulation Randall Quarls will expire in October. In addition, Dallas Fed President Kaplan and Boston Fed President Rosengren resigned at the same time this month due to scandal, and the Fed's top management will face a major reshuffle.

Warren's fierce stance meant that the progressives' opposition to Powell was completely open, and the infighting between the moderate and progressive democrats opened up a new battlefield. Moderate Senator John Tester has previously expressed support for Powell's re-election in an interview, arguing that appointing new people under pressure will affect the independence of the central bank.

In addition, moderate and progressive Democrats in Congress are engaged in heated debate and intensive negotiations over the $1 trillion infrastructure bill and the $3.5 trillion budget. Since Democrats hold only 50 of the 100 seats in the Senate, not a single vote can be lost. Biden and the top Democrats have so far failed to persuade moderate Senators Joe Manchin and Christine Hinima to support the $3.5 trillion budget, and Biden's economic agenda is in danger of collapsing at any moment.