Despite his background, Fed Chair Jerome Powell has emerged as a groundbreaking central banker. His stewardship over the economy during the pandemic and his future plans for monetary policy make him a perfect choice for the head of the Federal Reserve.
Jerome Powell is one of the most powerful people in America. As Chair of the Federal Reserve’s Board of Governors, Powell oversees an agency that controls the supply of money in America, the interest rates on that money, and the regulation of financial markets. Despite the immense responsibilities of the Fed, it is notoriously difficult to remove a chair who the president disagrees with. The Federal Reserve has traditionally been an apolitical institution, but that norm was of course broken by the former president. The easiest way to remove a chair is to wait until their term expires and refuse to renominate them.
Powell’s term expires in February, and while he remains favored to be renominated, a vocal segment of Democratic lawmakers has raised objections to his return. With shrinking time until the 2022 elections and razor-thin majorities, Democrats must not waste time arguing over Powell, a quietly revolutionary Fed chair.
That Jerome Powell can be described as revolutionary is nothing short of astounding. Powell is a Republican whose first experience in federal government was under George H.W. Bush. Before his nomination to Fed chair he served on the Fed’s Board of Governors (who oversee the Federal Reserve and set its policies), a position he reached as the result of a compromise between President Obama and congressional Republicans. His ultimate nomination to the highest bank in the land came at the request of Donald Trump. And yet, at nearly every opportunity, Powell has proved himself to be arguably the most progressive chair ever.
In the midst of the Coronavirus pandemic, Powell’s aggressive steps to avert economic catastrophe were unprecedented. One of the most notable of these was the use of quantitative easing (QE), a controversial practice where the government buys debt from firms in order to encourage spending. Powell and the Fed spent trillions buying assets early in the pandemic, more than doubling the total amount of QE during 2008 in just a few months. While QE happens between the federal government and banks, the resulting economic growth and lower unemployment rates have far-reaching benefits to average Americans. Betting on the effects of QE to counteract the panic of the early pandemic, Powell oversaw a spending campaign so vast that TIME Magazine proclaimed in June 2020 that the Fed was “simply rewriting the rules of American capitalism.” Recent research proves that Powell’s bet was a success, and the QE which continues today has not lost its value.
Even before the pandemic, Powell’s Fed was pursuing policies unheard of just a few years ago. The most wide-reaching of these was a commitment to low interest rates. For decades, a Milton Friedman-inspired Washington consensus was to avoid inflation at all costs. That cost would be the unemployment rate, which would be intentionally kept high to stave off inflation. In 2020, however, the Fed released new guidelines on monetary policy, with a groundbreaking announcement: raising interest rates would only happen if inflation averaged above targets over time. This was a marked shift from previous policymakers, who would preemptively act to stave off real or imagined inflation concerns.
Currently, virtually all mainstream evidence points to runaway inflation concerns being imaginary. This of course has not stopped Republicans from making crocodile-tear claims about the state of the economy. Spending is the backbone of the Biden Administration’s transformative economic plans. An inflation-hawk Fed chair could derail that agenda by raising interest rates or by publicly siding with conservatives on the inflation debate. Yet, Powell has stayed the course. Even during congressional hearings, Powell has waved aside concerns by repeating that current inflation is temporary, and that the Fed has no plans to raise interest rates until next year. Overall, he has moved in lockstep with other top Biden officials.
Powell is a Republican who works with Democrats to accomplish shared goals. This is particularly important today, as liberals and Fed leadership now share a key goal: full employment. In practice, this means keeping the unemployment rate at about four percent or lower. Having a Fed chair committed to full employment is a transformative step for America. Maximum employment has technically been one of the responsibilities of the Fed since the 1970s; however, activists fought for decades for that mandate to be added, and then for years after that for the mandate to be actually followed by officials. Not one to understate its importance, trailblazing economist Sadie Alexander stated in 1963 that full employment “is necessary not only to meet the ends of social justice and morality, to fulfill the guarantees of our constitution and laws, but because... it becomes an economic imperative which is basic to our very existence as a free society.” In short, Powell’s committed personal support of full employment is nothing short of revolutionary.
Powell’s true value is not only in his groundbreaking ideas, but his popularity. He has been subject to the Senate confirmation process twice in recent years: first when he was appointed to the Board of Governors, and second when he was appointed to Chair of the Board of Governors. Both times were a landslide: 67-24 in 2014, and 84-13 in 2018. In a narrowly divided senate consumed by increasing polarization and obstructionism, no true Democrat could be expected to sail through without a bitter fight. Such a fight would take time away from other badly needed legislative priorities and could potentially prove embarrassing to the Biden Administration were the nomination to fail.
Currently, Powell is virtually guaranteed to be voted through again. The only real obstacle to this is President Biden himself, who must rise above the noise and renominate “Washington’s Most-Liked Man” to the Federal Reserve.
Alex Moskovitz is a freshman C.L.E.G. major in the School of Public Affairs. He is a staff writer for the Agora.
Image courtesy Brookings Institution, Creative Commons.