U.S. monetary policy won't be a top-of-mind concern for President-elect Joe Biden as he prepares to take office in January, with the Federal Reserve's economic arsenal already deployed against an ongoing recession and decisions about federal spending more pressing for the next administration.
But over his first year in office Biden will have to decide how deep an imprint he wants to put on the U.S. central bank, and particularly whether Fed Chair Jerome Powell's push this year to refocus it on job growth has earned enough credibility among Democrats to be reappointed.
Among the considerations the incoming Democratic president will have to weigh are likely calls from progressives for more extensive change at the Fed, given that the party's platform included reforms to make the Fed more attentive to issues like racial wealth inequality, and whether Powell is the right figure to pursue that.
Opposition to Powell may also arise from those who want tougher financial regulation. Democratic U.S. Senator Elizabeth Warren, now a key voice on financial regulatory issues, opposed his nomination in 2018.
As he balances the varying demands of those who brought him to office, Biden may want to put his own stamp on the central bank when Powell's term as Fed chief ends in Feb. 2022, said Vincent Reinhart, a former Fed official who is now Mellon's chief economist, noting the Democrats' extensive cadre of economic policy experts.
Among them, current Fed Governor Lael Brainard has been mentioned as a possibility to replace Powell or become the next U.S. Treasury secretary; Atlanta Fed President Raphael Bostic, the first Black to run one of the Fed's regional branches, has become an influential voice within the Fed system on issues of economic fairness, and during Biden's years as vice president was an assistant secretary at the Department of Housing and Urban Development.
NOMINEE OF LEAST RESISTANCE
Still, Powell won't be without strengths when the issue of his future comes up. He has been a steadying hand at the central bank who not only managed a forceful Fed response to the coronavirus pandemic, but survived a tumultuous relationship with Republican President Donald Trump in part by building support among both Democrats and Republicans in Congress.
If Republicans keep control of the Senate, and thus over confirmation of Biden's appointees, those alliances could be an asset for Powell, a 67-year-old Republican cut from the same moderate, bipartisan cloth as the president-elect, and a well-known figure in institutional Washington. Two run-off elections in Georgia in January will determine which party controls the Senate.
Powell "would be the nominee of least resistance," if Republicans do maintain control of the Senate, Cornerstone Macro analyst Roberto Perli wrote recently.
Even beyond those dynamics, Powell has delivered what is arguably one of the most significant reforms to U.S. monetary policy since former Fed chief Paul Volcker redirected the central bank in the late 1970s and early 1980s to fight inflation. In Powell's case, it involved recasting the Fed as a job promoter first and an inflation fighter second.
The rollout of the Fed's new framework drew praise from progressive economists, union officials and others over the summer, including top Biden economic adviser Jared Bernstein, who called the new approach "music to my ears."
VICE CHAIR APPOINTMENTS
Terms for the Fed's two vice chairs, Richard Clarida and Randal Quarles, will also expire during Biden's first year. Clarida is a respected economist who managed the shift in Fed policy during a nearly two-year review. Quarles, as the Fed's vice chair for supervision, may be the least likely of the three to be asked to stay on if the Biden administration pursues the tougher oversight sought by Warren and others.
Trump has two appointments to the Fed's seven-member board of governors pending before the Senate, but it is not clear whether they will be confirmed in the lame-duck session that will end in early January when a new Congress convenes. If not, then Biden would have those openings to fill as well.
Beyond personnel, Biden will face choices over whether and how to have the Fed build criteria such as racial wealth and employment outcomes into its analysis, something Powell and other policymakers like Bostic have moved towards on their own.
In an email supporting the Fed's new framework, Bernstein said he still felt changes to the Federal Reserve Act were warranted "for when someone with Powell's sensibility isn't leading the show."
Changes to the Fed's governing statute would be less likely with a Republican-controlled Senate, a constraint that may bind many of Biden's ambitions.
And there may be one short-term hitch with the Fed for Biden to address.
Many of the emergency lending facilities the central bank established this year to fight the current crisis are due to expire on Dec. 31, and any reauthorization would require the approval of the outgoing Trump administration.
Fed officials feel those programs have helped markets operate normally through a historic downturn, and if Trump refuses to approve their extension it could be a source of trouble at least for the weeks until Biden takes office.
At a press conference last week held before Biden's victory in the Nov. 3 election became clear, Powell said the Fed was "just turning to this issue now and we have not made any decisions" about whether the economy is ready to do without the emergency measures credited with stopping a full-blown financial crisis last spring.