What’s at stake as Biden decides whether to stick with Jerome Powell as Fed chief

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Federal Reserve Chairman Jerome Powell testifies during a House Financial Services Committee hearing in Washington, D.C., on Sept. 30. Powell’s term expires early next year and President Biden must decide whether to reappoint him.

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Then-President Trump walks with Powell after nominating him to head the Federal Reserve on Nov. 2, 2017. Trump broke with recent tradition by picking a new Fed chief.

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Cargo containers are stacked on a container ship at the Port of Los Angeles on Oct. 15, in San Pedro, Calif. Supply chain disruptions are sparking massive cargo traffic jams and driving up prices for a slew of products.

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Senator Elizabeth Warren speaks with Powell during a Senate Banking, Housing and Urban Affairs Committee hearing on Sept. 28 in Washington, D.C.. During the hearing, Warren callled Powell «a dangerous man» to head the Fed.

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President Biden speaks about the September jobs report from the White House in Washington, D.C., on Oct. 8. Biden must decide whether to reappoint Powell to a second term.

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President Biden speaks about the September jobs report from the White House in Washington, D.C., on Oct. 8. Biden must decide whether to reappoint Powell to a second term.

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Fed policymakers are preparing to gradually scale back the amount of money the central bank is pumping into the economy, but they don’t want to move too quickly and see the recovery stall out.

As chairman, Powell has steered the central bank towards a policy that is more committed to full employment, even if that means tolerating somewhat higher inflation in the short run.

However, he has stressed that the Fed will use its tools (namely, higher interest rates) to crack down if prices appear to be spiraling out of control.

It’s doubtful that an alternative nominee would be any more aggressive when it comes to promoting jobs or keeping interest rates low. Any policy differences are more likely to revolve around things like bank regulation and the Fed’s role in battling climate change.

What are the politics at play?

Powell would almost certainly win bipartisan backing in the Senate for a second term, while a more progressive-friendly nominee might face a tougher battle.

Biden has to weigh how much blowback he’s willing to tolerate from the left wing of his party, and how much political capital he wants to spend pushing a Fed nominee through the Senate.

Additionally, Biden is likely to take heat from Republicans over inflation next year if rapid price hikes continue through the midterm election.

Having a Republican like Powell in charge of the Fed — which is the government’s primary inflation watchdog — could give the White House a measure of political cover at a time when Republicans are using surging prices as an attack line heading to the 2022 midterms.

O.K., so how likely is Powell to stay on as Fed chairman?

Oddsmakers say Powell is still the prohibitive favorite to be nominated for a second term, but his chances are not quite so high as they were in early September.

The White House has not said when it will make a decision, but previous presidents have typically made the call no later than November, to allow time for Senate confirmation.