The campaign to renew Fed Chairman Jay Powell seems less certain. His main rival for the job, Fed Governor Lael Brainard, is starting to sound like the less risky choice.
The explosion of stock market scandals of two chairmen of regional Fed banks, Robert Kaplan and Eric Rosengren, resulted in their early retirement. Then, last Friday, Bloomberg News revealed that Fed Vice Chairman Richard Clarida had also traded in securities, on the eve of a Fed announcement on how it would support the pandemic economy. , in February 2020.
There are now two separate investigations underway – by the SEC and the Fed’s own Inspector General – and the Justice Department may launch its own investigation.
More from Robert Kuttner
For Powell, who may well be innocent of personal wrongdoing, the problem is twofold. First, the White House wanted this decision made now, but it obviously cannot act until the results of the investigations are known, which could take months.
The other problem is appearances. In a scandal-free Biden administration, it appears Powell presided over a Fed culture that was lax on insider trading.
As the inflation rate continues to climb, another problem is that Biden doesn’t want the Fed to be pressured to tighten the currency prematurely. Powell has been good at it so far. The only Fed governor even more reliable on monetary policy is Lael Brainard.
Brainard led the creation of a new Fed monetary policy framework that created more leeway to keep credit cheap and plentiful in the interest of full employment – an implicit rebuke to former Fed Chairman Janet Yellen for keeping money too tight for too long. My sources say there is little love lost between Yellen and Brainard.
Yellen has been one of the main promoters of Powell in the administration. Even Yellen, however, recently said, publicly anyway, that Biden had not made up his mind.
Powell also looks like a problem since Elizabeth Warren went public with her case against her regulatory laxity. Again, the contrast is with Brainard, who championed tighter banking regulation, as documented in this New York Times play by Peter Coy.
The widely touted benefits of the re-appointment of Powell, a Republican who helped the recovery through favorable monetary policy, are quickly outweighed by the costs.