Home ›› 05 Dec 2021 ›› Editorial
Perhaps the chemistry of selecting a Chair from another apparent dichotomous axis was difficult, but what ultimately prevailed in the process was the independence of the Federal Reserve System or Fed. Jerome Powell, the incumbent chair of the Fed whose current tenure will expire in February 2022 got the nomination for the second term by President Joe Biden on November 27, 2021, surprisingly with endorsement from Treasury Secretary, Janet Yellen who played a pivotal role in renomination. This nomination is considered to be a welcome gesture. Fed is the central bank of the United States and Chair is the chief executive of Fed who is nominated by the President of the United States for a period of four years. The nomination subsequently warrants nod from the Congress for confirmation, the upper house of the US parliament. The position is crucial in monetary management not only for the US but also for the interwoven global economy in this digitalised world.
Powell’s background is not from mainstream economics. He received a bachelor’s degree in politics from Princeton University in 1975 and earned a law degree from Georgetown University in 1979. Before public service, he worked as editor-in-chief of the Georgetown Law Journal, as a lawyer and an investment banker in New York City. He was picked up by the Republican President George H.W. Bush as an assistant secretary and as undersecretary of the treasury entrusted with the responsibility for policy on financial institutions, the treasury debt market, and related areas. In 2011, Jerome Powell, a Republican, was nominated by President Obama to the Federal Reserve Board of Governors as part of a deal alongside Jeremy Stein, a Democrat, to break a stalemate over Obama's appointments in the Republican-controlled Senate. He served as a Governor until his confirmation as Chair in 2018 by President Donald Trump who “jettisoned bipartisan tradition and decided not to renominate Janet Yellen, a Democrat, as chair” for the second term. The twist in Powell’s induction was partly influenced by the then-Treasury Secretary Steven Mnuchin, a distinguished advisor tasked with recommending presidential appointments for the incoming administration and partly in his leanings to moderate political views manifested by US Senate votes of 84-13 in confirmation.
However, the honeymoon did not last for long. President Trump, who advocated for a cut in interest rates to zero or even negative, was not happy with Powell over the interest rate hike during the very first year as
Chair amid a strong economy and low unemployment. As Powell reiterates the Fed's independence, Trump publicly called those at the Fed "boneheads," and "pathetic" and threatened to fire Powell. In 2019, in the midst of a trade row with China, he compared Powell to Chinese leader Xi Jinping. "My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" Trump asked. Powell responded that he will not resign if Trump requests him to do so.
The nomination of Dr. Lael Brainard, a Democrat for Vice-Chair of Fed manifests synergies in policies appropriate for the post-pandemic cataclysm, now compounded by the new virulent covid strain Omicron. Dr. Brainard served as Deputy National Economic Adviser for President Clinton for a short stint and her professional public service assignment started in 2009 as the counselor to the Treasury Secretary. She continued as undersecretary of the Department of Treasury from 2010-13 and subsequently took office as a member of the Board of Governors of the Federal Reserve System in June 2014 to fill an unexpired term ending January 31, 2026. An excellent academician who taught economics at MIT, Dr. Brainard served in many professional private assignments including the founding director and vice president of the Global Economy and Development Program at the Brookings Institution.
The duo would be complementing their responsibilities in this critical moment of a 22 trillion-dollar economy devastated by the Covid-19 pandemic with unending streams of strains. The world is now beset with job loss; with millions of workers displaced from service and manufacturing industries. Powell’s online remarks to the Fed’s annual economic symposium on unemployment and the uphill task of addressing in creating jobs; “ That part of the economy will find it very difficult to recover. That is millions of people who are going to struggle to find work.” During his first term, he navigated through an unprecedented challenging period including the biggest economic downturn in modern history and attacks on the independence of the Federal Reserve. Dr. Brainard also played a key leadership role working with Powell in invigorating United State’s robust economic recovery.
“America needs steady, independent, and effective leadership at the Federal Reserve so it can advance its dual goals of keeping inflation low and prices stable, as well as creating a strong labor market that broadly benefits workers with better jobs and higher wages. President Biden has full confidence in Powell and Brainard’s experience, judgment, and integrity to continue delivering on those mandates and to help build the economy back better for working families.” The policy switch to jobs from the preeminent focus on inflation by two monetary policy veterans manifests an ingenious deviation in the current context yet the challenge will be in keeping the economy at the threshold of 2 percent inflation level.
Whatever we observe in this brief discourse on nomination episodes reveals several issues in the context of integrity, magnanimity, and neutrality for the sake of the robust and sound functioning of an institution crucial for economic growth. Indeed, these virtues constitute an integral part of state management in ensuring the soundness of the critical institutions essential for sustainability. The central bank is a vital organ of the financial and monetary management of any sovereign country in upholding the currency value and soundness of the monetary system. Simply speaking, the sovereignty of a country is embedded in the independence of the central bank.
The writer is the Treasurer and a Professor at the School of Business and Economics, United International University. He can be contacted at obaidur@eco.uiu.ac.bd
