It is not known whether Elizabeth Warren has ever heard of Oskar Lafontaine, that short-term finance minister from distant Bonn, whom the British revolver newspaper The Sun once called “Europe’s most dangerous man” because of of his sometimes coarse ideas. The activist senator from Massachusetts recently discovered a “dangerous man,” yes, he was even sitting right across from her in Session Room 216 of the Hart Congress Building in Washington: Jerome Powell, head of the US Federal Reserve.
Powell? Dangerous? Of all things, that honest, wise and always conscientious man? The fact that Warren felt compelled to make such a gross mistake shows that the internal party dispute between the American Democrats over the future occupation of the top management of the Fed is entering the decisive phase: President Joe Biden will likely still be in. October, Washington is told to decide whether Powell will hold the leadership position for another four years beyond February 5, 2022. So far, there is much to suggest that Biden will propose exactly that in the Senate. Warren and her left-wing colleagues, on the other hand, are pushing for the 68-year-old to be replaced – preferably by Lael Brainard, an economist considered progressive and already a member of the seven members of the Fed’s executive. Plank.
The conflict over the most powerful central banker in the world has several levels. For example, many Democrats want more feminine, diverse, and political Fed leadership that not only strives for stable prices and full employment, but also fights climate change and does more to eliminate it. undesirable economic developments – from low wages to inequalities in wealth Discrimination against women and social minorities in the workplace. Behind this is also the struggle for opinion leadership in the party, which moderate and leftist Democrats have waged for years.
Warren fears Biden will cement Republican dominance over Fed
There is also an arithmetic example that Warren recently did. According to this, Biden could, if he does it skillfully, have the Fed run for years to come by a board of directors whose members are mostly close to Democrats. If Powell remained in power, the opposite could happen. Then, according to Warren, Democrat Biden could cement a Republican majority – a “game of chance” that was also irresponsible because Powell and his deputy Randal Quarles had relaxed banking rules to such an extent that the next financial crisis could soon be over. ‘horizon. “You’ve made our banking system less secure, and that makes you a dangerous man when it comes to running the Fed,” Warren called out to the Fed chief at the hearing in the Hart Building.
It’s unclear whether the senator’s confrontational strategy will work, however, as her allegations have recently been so extreme that more Democratic members of Congress are being forced to side publicly with the incumbent president. Senator Jon Tester of Montana, for example, said it was not about appointing a Democratic Fed leader, but a competent leader. Powell had proven under President Donald Trump that he could resist political pressure and defend the independence of the central bank. If progressive Democrats are now looking for a controllable and politically acceptable candidate, it is because they are extremely short-sighted. “It was short-sighted by the former president and it is short-sighted by the progressives,” Tester said.
Powell has done almost everything right lately, from the perspective of moderate Democrats
This is especially true given that, from the perspective of moderate Democrats, Powell recently did almost everything right in terms of content. From the onset of the corona pandemic, he bravely opened the coffins of the central bank and thus saved the economy from a worse crash. He sponsored projects against racial discrimination, against inequalities and for more climate protection. But above all: under his leadership, the Fed has decided on a new strategy that Democrats in particular have hardly dared to dream of for years: the central bank has eased its inflation target, which is now no more than 2% , but “two percent. In the future, if the inflation rate has been below this value for a long time, then it may be significantly higher for a while – as is currently the case. This allows the Fed to keep the key rate low longer than before, for example to allow marginalized groups to re-enter the labor market.
A loophole in Powell’s balance sheet, however, is the latest case involving high-ranking monetary politicians in stock transactions, which has already cost the heads of regional Fed banks in Boston and Dallas their jobs. It is quite common for central bankers to buy and sell securities privately. In view of the flood of money with which the Fed has flooded the markets since the start of the pandemic and pushed up stock prices, the company is now facing strong criticism. Powell promised full clarification.
In the opinion of many experts, however, Warren’s accusation that the Fed has degenerated into a Wall Street bailiff does not stand up to scrutiny. In fact, the rules have indeed been relaxed, but especially those that experts consider really excessive and damaging to the economy. Even the authors of the great banking reform of 2010, former Democrat MPs Christopher Dodd and Barney Frank, stressed that there had been “no significant attack” by the Fed on their legislation. If Biden sees a need for action in banking regulation, then he should instead turn to Powell’s Vice Quarles and demote him to a mere board member.
Biden can fill or replace four Fed leadership positions
This is exactly what he could actually do. In total, Biden can fill four positions on the Fed’s board of directors. A table is conceivable with which it could appeal to many critics. If Powell were to be named president for another four years, Brainard could become his deputy. At the same time, it would automatically be responsible for banking supervision and regulation.
Trump-appointed board members Michelle Bowman and Christopher Waller remained in office, but their colleague Quarles would have to consider in this scenario whether he would resign entirely or return to the ranks and fulfill his contract, which runs until ‘in 2032. Even if he did the latter, Biden could still nominate two new candidates who have the profile that friends of the party want – more feminine, more diverse, broader. Lisa Cook, professor at Michigan State University, and William Spriggs, chief economist at the AFL-CIO, are exchanged. He would be the first non-white board member in 15 years.
We cannot, however, respond with precision to Warren’s request for a Democratic majority on the board of directors: three members are close to the Democrats, three others to the Republicans. What about Powell? He was promoted to boss by Republican Trump, who now hated him. However, he was initially brought to the board of the Fed by another president: Democrat Barack Obama.