White House decisions on Fed leadership complicated by trading furor


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Powell is the frontrunner to keep the job as Fed chairman when his term ends

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federal Reserve Chairman Jerome Powell’s chances of a second term leading the central bank so far have been dwindled but not derailed by a reputational crisis over stock-trading revelations by senior executives.

Mr. Powell, a Republican, is the front runner to retain the job when his term ends early next year. but Suspicious business activity by two Fed Bank presidents, First reported last month by The Wall Street Journal, cast a cloud over its prospects A vocal minority of Democrats who had already opposed his nomination New grounds to call for their replacement.


President Biden’s decision to lead the Fed when Mr. Powell’s term ends in February comes as economic data shows signs of widening inflationary pressures, which have been reluctant monetary measures imposed to support the economy during Covid-19. Threatens to complicate subsequent decisions on incentives. Last year the pandemic hit.

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“Business scandal has thrown into a ditch [White House personnel] “Progressive Groups is looking for a crack in Powell’s defense and thinks they have found it,” Tim Dew, chief US economist at SGH Macro Advisors, said in a note to clients.

For now, no Senate Democrat has publicly joined Sen. Elizabeth Warren (D, Mass.) when she criticized Mr. Powell’s leadership last week. People familiar with the administration’s deliberations said Ms Warren’s attacks have not happened and the business mess is seen as reprehensible, not unfortunate. This is at least partly because Mr. Powell has taken preliminary steps to quell the controversy.

Some analysts said the issue could also be a headache for the White House if they choose not to re-appoint Mr Powell, as Governor Lyle Brainard, a Democratic economist, is seen as the most viable candidate for his successor. As seen, 12 of the systems are responsible for monitoring. Reserve Bank for the past several years

Mr Du said a “scorched earth attempt” to stop Mr Powell could have caused unintended collateral damage, raising questions about why others at the Fed, including Ms Brainard, were not aware of the trade disclosures.

While no leader is necessarily involved in the business decisions of other executives, “at the very least, if it implicates Powell, it includes Brainard,” said Roberto Perli, a former Fed economist who is now an analyst at the research firm. Cornerstone Macro.

A Senate Republican staffer said that to the extent that Mr. Powell faces questions at a possible confirmation hearing on investment inquiries, Ms. Brainard will be given her role overseeing the Reserve Banks.

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Those responsibilities include an annual review of each Reserve Bank, including budgeting and general operations. Dallas Fed Chairman Robert Kaplan’s trading activities have been reported annually since he joined the bank in 2015, and his investment patterns in 2020 were similar to those in previous years. In January, the Fed formally re-appointed Reserve Bank chairmen to a new five-year term, in what Ms Brainard called a “rigorous process” in a press release.

The crisis is serious because the Fed’s impression on the economy is as big as it ever was, and the question of whether the institution is acting in the best interest of the public tarnishes its credibility.

Mr Kaplan resigned from his position last week After his financial disclosures revealed he had bought and sold at least $1 million last year In stock companies including Chevron Corp., Delta Air Lines Inc., Marathon Petroleum Corp., and Johnson & Johnson.

Separate disclosures by Boston Fed Chairman Eric Rosengren, who cited health reasons in retiring last month, showed he made more than three dozen trades, albeit for much less than Mr. Kaplan, four real-estate. Shares in investment trusts that buy mortgage-backed securities.

Both banks said the trades followed the Fed system’s code of conduct, but ethics experts said they showed poor judgment; In the latter case, for example, last year the Fed was buying large amounts of mortgage bonds to stabilize passive markets. Some critics have questioned whether the transaction violated broad guidance for senior Fed officials that instructs them to “avoid engaging in any financial transaction whose timing is based on inside information”. Can create acting presence.”

Ms Warren called for the Securities and Exchange Commission last week to review investment activities, including revelations from May that Vice Chairman Richard Clarida had moved money between mutual funds as the coronavirus pandemic hit markets. had started. he first declared its opposition Based on his record easing bank rules for the potential nomination of Mr. Powell.

Mr. Clarida, who last year listed five transactions involving broad-based index funds on two dates six months apart, has said those transactions were part of a pre-planned rebalancing. “I have always honorably and honestly acquitted myself in respect of public service obligations,” he said during public remarks on Tuesday.

In a Senate speech last week, Ms Warren cited the transaction as evidence of a “culture of corruption” at the Fed and said that Mr Powell, whom he had previously portrayed as a “dangerous man”, was “a leader”. as had failed.”

The Fed said last week it had engaged its inspector general’s office to conduct an independent review of trade. At a congressional hearing last month, Mr. Powell promised to reform policies, including how senior executives manage personal investments to reduce the presence of conflicts of interest as well. The rules allowing trade by M/s Kaplan and Rosengren are not enough to uphold public confidence, he said.

Mr Powell was confirmed on a bipartisan basis in 2018, and his reappointment has been supported by lawmakers on both sides. Ms Warren was the only senator to oppose her confirmation in 2018 on the 23-member Senate Banking Committee.

Ms Brainard’s potential GOP protests, meanwhile, “create at least an open question whether she can be confirmed,” said Sarah Binder, a political scientist at George Washington University who co-authored History of the Fed Was.

Democrats control the Senate with Vice President Kamala Harris able to break a 50-50 tie. But gaining party-line confirmation in the Fed chair “may not be the message the Biden White House wants to send to the world,” Ms Binder said.

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Even before the latest controversy, the decision to appoint the Fed had opened a divide among Democrats, with a group urging that Mr. Powell be replaced so that the central bank would put more emphasis on progressive priorities on bank regulation and climate change. can proceed clearly. Another group argued that Mr. Powell’s bipartisan support had untouched his objectives of promoting a stronger labor market reform against more intense partisan attacks. Members of Mr Biden’s economic team, including Treasury Secretary Janet Yellen, have supported the reappointment.

The last three presidents selected their candidate for Fed chairman in early November to give them enough time for Senate confirmation before a new term begins in February. Mr Biden already has a vacancy to fill on the Fed’s seven-member board. Mr Clarida’s term as vice president ends in January, with Biden given two slots to fill in addition to the decision to retain Mr Powell.

This week marked the beginning of a potential leadership reshuffle as Randall Quarles’ four-year term as vice president of bank supervision ended. Mr Biden has not nominated anyone for the job, and the Fed said it would not nominate any current governor to handle Mr Quarles’ portfolio.

Mr Biden is making his decision at a particularly consequential moment for his domestic-policy agenda. He’s trying to secure a Democratic agreement on a $3.5 trillion proposal Moving forward to address health care, education, child care and climate policies bipartisan infrastructure spending bill. Congress will also need to raise the federal lending limit later this year.

Both the tax and spending debate and personnel decisions at the Fed represent significant sources of policy uncertainty in the final months of 2021. The Fed could face tough choices next year if more persistent inflation forces the central bank to accelerate plans. Raise rates next year.

A White House spokesman said Mr Biden is engaged with his senior economic team on personnel decisions and will make them “in a thoughtful manner”.

The business debacle is a blow to an institution whose culture has prized unbiased research and analysis, which prefers to stay out of Washington’s rough-and-tumble debate.

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Norman Eisen, who serves as chief ethics counsel at the Obama White House, said, “They’re on a very high footing, and so it’s troubling.” He also appreciated Mr. Powell’s early response. “He’s spoken. He hasn’t been on the defensive, and the two regional presidents are gone. If he moves, the Fed can emerge from this strong.”

Mr. Powell met with at least four Democratic senators last week, including censors Chris Van Hollen (D., Md.) and Raphael Warnock (D., Ga.). According to a person familiar with the meeting, in at least one meeting, Mr. Powell did not wait for the topic of the trade dispute to come up and instead explained what had happened and what the central bank was doing to address it. .

This article first appeared in the Wall Street Journal

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