Jerome Powell’s chances for a second term as Federal Reserve chair gained momentum with Treasury Secretary Janet Yellen’s endorsement, a move that would reduce uncertainty about the path for monetary policy amid risks from inflation and the delta variant.
Yellen has told senior White House advisers that she favors renominating Powell, whose current term ends in February, according to people familiar with the matter. President Joe Biden hasn’t decided yet and is likely to make his choice around Labor Day, which falls on Sept. 6 this year, the people said.
Her support, reported Saturday, offers Powell an enormous boost—given both the weight of her position as Treasury chief and her personal stature having run the Fed herself for four years, capping a central banking career that spanned almost two decades.
Still, Fed governor Lael Brainard maintains some support inside the administration for the Fed chair job, according to one person familiar with the matter. The former Obama-era official, who Biden last year considered for Treasury secretary, has the support of progressive Democrats, many of who are working across the Biden team.
“One of the great benefits of keeping Powell on as chair is continuity,” said Derek Tang, economist at Monetary Policy Analytics. “That’s very reassuring in a time of such uncertainty. He is a steady hand. The markets see him that way and that’s why it helps.”
Powell’s nomination for a fresh term would need confirmation in the Senate, where there’s a 50-50 partisan split. GOP senators have in recent weeks backed the current chair, who served as a governor at the Fed from 2012 until being elevated in 2018, when then-President Donald Trump passed over Yellen for her own second term.
Yellen’s endorsement comes at an important time. Powell will deliver a much-anticipated virtual speech on Friday at the Federal Reserve Bank of Kansas City’s annual Jackson Hole symposium—possibly signaling when and how the central bank is likely to begin withdrawing some of its extraordinary support for the economy.
“This is a great opportunity for him to showcase his consensus building skills,” Tang said. Powell will have a chance to show the White House and others how he’s threading the needle within his own committee, given their different views on when to start pulling back support for the economy.
Powell and his colleagues have been applying a new policy framework—announced at Jackson Hole last year -- which alters a previous approach of raising interest rates to contain inflation based on expectations for job and economic growth rather than outcomes. Investors have been debating the appropriateness of the strategy at a time of major pandemic-triggered disruptions to supply chains and the job market. Putting a new Fed chief in place in February could heighten uncertainty in markets.
Critics, including Republicans and even some Democrats, have said the Fed is at risk of letting inflation get out of control for the first time in more than 30 years. They have urged Powell to begin pulling back on the Fed’s massive bond purchases, which help stimulate the economy by suppressing long-term borrowing costs.
“Monetary policy is at a critical juncture,” Deutsche Bank AG economists led by Peter Hooper, who previously worked at the Fed, wrote in a note to clients this month. Replacing Powell with someone more dovish “could prove counterproductive, as it could lead to an increase in perceived inflation risks, higher bond yields and weaker risk sentiment—all of which would delay the return of the economy to its pre-pandemic state.”