Several economists who follow the Fed said they expect Biden would replace Quarles when his term as vice chair for supervision expires in October 2021.
Powell’s fate under Biden is tougher to predict. The new president would come under pressure from some in his party to pick a Democrat, especially after Trump broke with a 40-year tradition of presidents sticking with the Fed chair chosen by their predecessor.
Instead, Trump dumped Janet Yellen, the first woman to lead the U.S. central bank, and replaced her with Powell, a Republican who was already serving as a Fed governor after being appointed by Barack Obama.
“There are a lot of Democrat-leaning economists who’ve been advising Biden at one time or another who are darlings of the think tanks,” said Reinhart. “A Biden White House will have lots of loyalties. If someone pulls the ticket on one of those loyalties” that may be enough to oust Powell.
Racial Diversity
Biden is already being lobbied by some groups to use appointments to improve diversity at the Fed, which has traditionally been dominated by White men, notwithstanding Yellen’s 4-year term.
His economic team also wants the Fed to focus more on racial inequality in the economy, and Democrats in Congress have introduced legislation to add that goal to the Fed’s existing mandate for price stability and maximum employment. This could have implications for the central bank if a Biden administration decided to endorse it.
But Powell and his colleagues have repeatedly addressed this topic themselves since Black Lives Matter protests swept the nation earlier this year. Importantly, the new strategy introduced in August explicitly promises more patience in raising interest rates than in the past to push the benefits of a tight labor market deeper into minority communities.
What Fed Wants
In the near term, it’s worth asking what the Fed may want from this election, said former Fed economist Julia Coronado.
With the economy’s recovery slowing in recent weeks, Fed officials have been unusually vocal in calling for more fiscal stimulus. Powell has said the Fed can lend plenty, but what the economy now demands is government spending. To his disappointment, elected officials failed to agree on a new aid package before the election.
A Democratic sweep on Tuesday will give the central bank more of what it wants for the economy, according to Coronado.
“What’s at stake for the Fed is whether they will have a partnership with fiscal policy that will allow them to achieve their mandate,” said Coronado, co-founder of Macropolicy Perspectives.
--With assistance from Jesse Hamilton.
This article was provided by Bloomberg News.