A Joe Biden presidency with a Republican-controlled Senate could spell out a victory for another Washington figure: Federal Reserve Chairman Jerome Powell.
With a record of drumming up bipartisan support, Powell is a familiar face among senators and may face the fewest political obstacles to renomination when his term as chair expires in February 2022.
“[Powell] has really built up relationships with the Hill, and so he’d be tough to dislodge,” former Fed economist Vincent Reinhart told Yahoo Finance. Reinhart said a Democratic sweep of Congress and the White House may have led to Powell’s ouster in deference to a more progressive Fed chair. The Democrats could still flip the Senate if they topple both incumbent GOP senators in Georgia’s two run-off races scheduled for January.
Instead, a mixed balance of power in Washington may end up being Powell’s best shot at a second term.
Powell, a Republican, made his way to the Fed in 2012 as an Obama appointee, earning confirmation after a 74-21 vote in the Senate. When he was nominated by Trump to become Fed chair, he passed the Senate again with flying colors, in an 84-13 vote.
Since becoming Fed Chair, Powell has made a concerted effort to build relationships on Capitol Hill with Democrats and Republicans alike. Official calendars detailing Powell’s calls and meetings are scattered with meetings with members of Congress.
By rule, White House nominees for the Fed will have to endure hearings in the Senate Banking Committee — and then win a majority of support in a full Senate floor vote. If the GOP holds onto control, that would mean that the Biden administration would have to sway at least a few Republicans in order to get a nominee confirmed by the Senate.
That would discourage Biden from picking too progressive a candidate for Fed chair.
Markets may be pricing in the odds of Powell, therefore, remaining Fed chair after 2022.
“The re-appointment of Federal Reserve Chairman Jerome Powell would be supportive for financial market sentiment,” wrote ING Chief International Economist James Knightley.
Against the odds
Powell’s path to renomination was unclear even under a Trump administration. Over the course of 2019, President Trump repeatedly bashed his own Fed chairman for not aggressively slashing interest rates to accommodate his trade war with China.
But in the face of the COVID-19 recession, Powell moved swiftly to lower rates to near-zero, restart the crisis-era policy of quantitative easing, and open liquidity facilities to backstop various financial markets.
In the midst of the crisis, Powell appeared to regain Trump’s confidence and the president bestowed the Fed chair with the title: “most improved player.”
Ed Mills, Washington policy analyst for Raymond James, told Yahoo Finance that a Biden win would have raised separate concerns for Powell, specifically on regulations.
The Powell-led Fed over the past few years has been sympathetic to paring back some regulatory policies on the banking industry, although many of the measures were mandated by a GOP-led bill signed into law in 2018. Most of the Fed’s regulatory and supervisory matters are also spearheaded not by Powell himself but by another Trump nominee, Randal Quarles.
Either way, Mills said a deference to the status quo and Powell’s actions over the last eight months now make him a prime candidate for renomination.
“The market generally doesn't like change at the Fed, so that might be his saving grace — in addition to how well he has performed in his response to COVID-19,” Mills said.
The Biden administration will have other Fed-related appointments to think about. Biden could add two nominees to the Fed Board, assuming the Trump administration can’t complete the pending nominations of Judy Shelton and Christopher Waller.
Biden could also fill a third spot if current Fed Governor Lael Brainard ends up as Biden’s Treasury Secretary.
Reinhart says those nominations too will be moderated by a GOP Senate.
“Biden picks for [Fed] governor will be very conventional, much more so with a Republican majority than with a Democratic majority — and veering toward the middle with regard to issues on regulation,” Reinhart told Yahoo Finance.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.