How Powell's charm offensive puts him ahead in the race for a second term at Fed

A former Carlyle Group partner, the current chair of the US central bank enjoys a cordial relationship with both Republicans and Democrats

Federal Reserve head Jerome Powell has built a reputation as a skilled advocate for the US central bank, thanks to strong personal ties forged with Congress that will help if he is nominated for a second term.

Mr Powell has worked Congress during his three years at the helm like no Fed chair since Alan Greenspan. But where Mr Greenspan was a regular of the cocktail party circuit, Mr Powell has taken a more workmanlike approach.

Since taking charge in February 2018, through June of this year, he held at least 350 meetings, dinners or phone calls with members of Congress, according to his monthly calendars. That is almost nine per month, and many of those included more than one lawmaker.

The tally does not include at least 16 appearances as chair before numerous congressional committees.

Mr Powell, 68, already was favoured for renomination, but that status got a significant boost when Treasury Secretary Janet Yellen, a former Fed chair herself, told senior advisers to President Joe Biden that she supports Mr Powell continuing in that role.

Mr Biden is expected to make his decision around Labour Day about who to nominate for the four-year term of Fed chair.

Mr Powell’s relationships with the Senate, split 50-50 along party lines, would prove helpful in navigating any confirmation process amid expressions of doubt among some progressives over his record on bank regulation. He has charmed both Republicans and Democrats in Congress at a time when Mr Biden sorely needs to regain some goodwill on Capitol Hill after the ongoing crisis in Afghanistan.

Mr Powell, who was confirmed into the chair with a 84-13 vote, came into office vowing to repair relations with Congress. He said in an interview that he intended to “wear the carpets of Capitol Hill out”.

And for good reason.

The Fed’s standing was badly damaged by the global financial crisis of 2008-2009. Much of the public and many politicians blamed the Fed for not seeing the crisis coming and for bailing out the banks that caused it.

Republicans were especially aghast at the Fed’s emergency response, which included unprecedented purchases of Treasuries and mortgage-backed bonds, aimed at settling financial markets and stimulating the economy.

Not only has Mr Powell rebuilt bipartisan respect for the Fed in Washington, he’s gained many a personal ally. Even Republicans who object to his bringing the Fed into debates on climate change and racial inequity want him reappointed.

Fed spokeswoman Michelle Smith declined to comment on matters related to the nomination process.

Mr Powell, a former Carlyle Group partner, knows his way around Washington, having worked at the Treasury during the administration of George HW Bush and made congressional contacts on Capitol Hill during his time at the Bipartisan Policy Centre.

As a Fed governor when Donald Trump was elected, he saw the opportunity for a Republican president to name a new chairman. Early in 2017, Mr Powell reached out to then-Treasury Secretary Steven Mnuchin to get to know him, according to sources. The pair hit it off, and Bloomberg News reported at the time that Mr Mnuchin lobbied Mr Trump intensely to choose Mr Powell instead of renominating Ms Yellen as chair.

Once in office, he encountered how easy it was to lose Mr Trump’s confidence. That’s when his charm offensive paid dividends.

In response to reports that Mr Trump was considering firing or demoting Mr Powell because of the level of interest rates, some Republicans rushed to his defence – a rare occurrence in the Trump era. Republican senator Patrick Toomey had warned in a TV interview it would “a very, very bad idea” to try and remove Mr Powell.

Mr Powell has also impressed progressive lawmakers, too, with his frankness in owning up to Fed mistakes that may have slowed progress on jobs growth.

In a July 2019 exchange with New York Representative Alexandria Ocasio-Cortez during a committee hearing, the then-freshman legislator asked Mr Powell if the Fed hadn’t repeatedly botched its estimates of the level at which unemployment would begin to provoke inflation. Mr Powell took the sting out of her line of questioning with a blunt response: “Absolutely. I think we’ve learned that it’s substantially lower than we thought.”

Mr Powell’s strengthened relationship with Republicans on Capitol Hill and the trust he enjoys on Wall Street have helped make it easier for him to more aggressively pursue employment gains and worry less about longer-run inflation than any Fed chair in more than 50 years.

Quote
If Mr Powell gets another term as Fed chair, Governor Brainard is a clear favourite to be tapped for the Fed’s vice chair/supervision role
Kevin Cummins, chief US economist at NatWest Markets

Democrats like Senate Banking Committee chairman Sherrod Brown, who fault him for rolling back some post-crisis banking regulations, acknowledge they like him personally, and the two have dined together. Almost all agree he’s handled monetary policy well and shepherded financial markets through a period of chaos at the outset of the Covid-19 pandemic.

Mr Powell has met both with sceptics like Elizabeth Warren as well as moderate senators of both parties in what Mr Brown sees as an obvious attempt to keep his chairmanship. Many senior Democrats have confirmed in interviews that they would vote Mr Powell to another term.

Republicans are also lining up to back him as the best choice they could plausibly get from the Biden administration.

That said, he still needs the endorsement of key senators on the Banking Committee tasked with confirming the next chair. Mr Brown and Ms Warren have both advocated for more restrictions on banks, including their stock buybacks, even as they and other Democrats have praised Mr Powell’s monetary policies.

Despite the lift that Ms Yellen’s recommendation gives Mr Powell, Mr Biden has gone with the less obvious choice before. Another leading candidate is Fed Governor Lael Brainard, whom Mr Biden considered for Treasury Secretary before settling on Ms Yellen.

The president’s need for a bipartisan political win could prompt him to pick Mr Powell as chair and separately add more liberal nominees for other openings on the board.

Besides Mr Powell, Mr Biden also has the opportunity to replace the vice chair for supervision, who oversees bank regulations, held by Randal Quarles. His replacement could mollify some liberal senators. Then there is the post of vice chair, held by Richard Clarida, and an open seat on the Fed board.

“If Mr Powell gets another term as Fed chair, Governor Brainard is a clear favourite to be tapped for the Fed’s vice chair/supervision role,” Kevin Cummins, chief US economist at NatWest Markets, wrote in a note to clients on Monday.

Updated: August 25th 2021, 4:30 AM
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