With a nearly spotless record, the decision to not reappoint current Federal Reserve Chairman Jerome Powell would be purely dependent on his political affiliation. President Biden would be best serving the country by reinstating the Feds tradition of bipartisanship.
February 1st marks the end of the term for the Fed's current chairman, and his first four years have been challenging to say the least. The COVID-19 pandemic has been an unprecedented economic obstacle, and most economists agree that it was handled positively at the federal level. Despite this, Biden has been rumored to be eyeing democrat Lael Brainard as new Chairman, replacing Powell in spite of his successes. This is unfortunately not the first time this has occurred, however, as Powell was originally elected by Trump in a political move to replace Democrat Janet Yellen. The continuation of this precedent would be disastrous; The past has shown the politicization of the Federal Reserve has the potential to devastate our economy.
Take the classic example of Richard Nixon and Fed Chairman Arthur Burns before the 1972 Presidential election. By pressuring Burns to lower interest rates, the economy exploded and Nixon secured his landslide reelection. However, this period of extreme spending was followed by a double-digit inflation and two recessions as the Fed tried to raise interest rates to make up for the overextension of the dollar.
The replacement for Burns, Paul Volker, was appointed by Jimmy Carter in 1979. Despite his policies of high interest rates directly contradicting then President Reagan’s deregulation agenda, his effectiveness in curbing inflation led to his reappointment in 1983. Volcker’s contribution to the improvement of our economy was incalculable, and would never have been possible if Reagan had chosen to replace him with someone who more closely resembled his own economic and political ideas.
Federal Reserve governors are under the influence of all branches of government, but they are independent in the ways they implement policy and make decisions. The economy moves quickly, much faster than congress can churn out legislation, especially when many have very little knowledge of the topics they are voting on. The president and executive branch also often have their own ideas about the economy, and are put in office to express and implement them. The Federal Reserve serves the important purpose of putting a leash on these policies, regulating inflation and directing the economy so it is not squashed under a political agenda. Recent administrations, however, have made this difficult.
During his administration Trump elected 4 of the 5 governors of the Fed, including current head Jerome Powell. These appointed governors were given full control of the policy decisions of the Fed for the past four years, but that did not stop Trump from heavily criticizing his own appointees during his tenure- accusing Powell of being a greater enemy to the United States than Xi Jingping. Trump also consistently threatened to fire or demote Powell- both of which were out of his jurisdiction to do- due to his policy of increasing interest rates in 2018 and 2019. Despite Trump's threats and criticisms, these bipartisan decisions are what have kept the economy in check. As Trump blazed a trail of deregulation and trade war, the Fed was able to hold the Dollar value steady with high interest rates, even as insults were slung towards the chairman. In contrast, after the Coronavirus pandemic hit, Trump was full of praise for Powell when he lowered interest rates to zero and encouraged buying in order to keep the economy moving. A politicized Fed would never have the incentive to weather this criticism.
Biden should have an easy decision- because making the wrong choice will further entrench a dangerous tradition. The Fed, along with all other branches of government, should primarily serve the people- not a president, political party, or specific population. Our elected officials seem to most often serve their own political aspirations and interests, but the Fed has proven to hold strong against the changing political tide, despite criticism from those around them. Encouraging potential Fed members to espouse certain political ideals in order to be elected peels away the entire system our economy has subsisted on for nearly a century. Biden needs to re-elect Powell and retain our economy- instead of exposing it to the same corruption which is gnawing at the roots of our political system.
After reading your article I have become somewhat unsettled. The idea of the Fed is that it is an independent body that decides regulatory policies within our economy. They should never feel pressure or have its decisions be under the cloak of politics. If this happens the Fed is more than likely to become a partisan body that makes policies to appease those who put them in power rather than the country as a whole.
While a democracy is intended to rely on the people to approve and regulate the government's policies, this article reveals politicians' eagerness to appease the people that put them in power so they can remain in these positions, which is the other side of the double edged sword. This becomes dangerous when it has the potential to push ineffective fiscal policies on the basis of a partisan agenda.
I really enjoyed reading your post. You make a really good point that the politicization of the Federal Reserve has the potential to negatively affect the economy. I am very curious what decision Biden will make. Great post!