Stung by Trump, Fed chief gets fresh start with Biden

Federal Reserve Chair Jerome Powell may finally catch a break from White House pressure and major disputes with the administration when President-elect Biden takes over in January. 

President TrumpDonald TrumpTop Trump aide Derek Lyons to leave White House this month Judge rules Trump Org must turn over documents to NY AG as part of probe Longtime GOP strategist Steve Schmidt announces he’s registering Democrat MORE picked Powell to be the Fed chief, but then spent most of the next three years criticizing his policies while nominating loyalists to the board who could be chosen to replace him as soon as possible.

Powell seemed to have a close relationship with Treasury Secretary Steven MnuchinSteven MnuchinCongress closes in on COVID-19 relief, funding deal Democratic leaders under pressure to agree to slimmed-down COVID-19 relief deal Congressional leaders to meet on government funding, coronavirus relief as deadline looms MORE, but even that frayed last month during a dispute over emergency lending facilities.


Powell, however, is unlikely to face a constant barrage of attacks from Biden — an institutionalist intensely focused on bipartisanship.

Fed experts say Powell’s strong rapport with his predecessor and Treasury Secretary nominee Janet YellenJanet Louise YellenThe climate candidate won — what can activists do now? Biden’s cabinet is built for comfort, not speed The Hill’s Morning Report – Presented by Mastercard – US inoculations begin; state electors certify Biden; Barr is out MORE gives him a sympathetic partner deeply knowledgeable about the ins and outs of the central bank.

“I think Powell will find sailing the sea of monetary policy much easier with the strong tailwind from the Biden administration behind him,” said David Beckworth, senior research fellow at George Mason University’s Mercatus Center and a former Treasury Department economist.

Trump tapped Powell, a Republican, to replace Yellen as Fed chief in 2017 with the blessing of Mnuchin, who had worked with Powell closely on financial regulation throughout that year.

Powell’s term will expire in 2022 and it’s possible Biden will nominate someone else to lead the Fed at that time. Yet Powell is still likely to get a fresh start with the new administration, particularly if Yellen is confirmed at Treasury.

“Yellen, of course, has a deep institutional knowledge of the Fed. She still knows the staff there. she knows what it can do, she knows what it can do well, and she knows the limitations of what it can do well,” said Kathryn Judge, a law professor at Columbia University. 


“That’s going to allow a productive working relationship.”

The two overlapped at the Fed from when Powell was confirmed as a Fed governor in 2012 through the end of Yellen’s term as chair in 2018. They share similar views on monetary policy, have effusively praised each other’s leadership of the central bank, and both err on the side of more ambitious fiscal stimulus in times of crisis.

Yellen and Powell could help enforce each other’s messages if the economy faces another downturn at the start of 2020, or if backlash to the Fed’s willingness to let inflation run slightly above average draws political fire from congressional Republicans.

Karen Shaw Petrou, managing partner of Federal Financial Analytics, said Yellen will take pains to avoid overstepping the wall of independence between Treasury and the Fed.

“However, when those monetary policy decisions raise fiscal policy concerns and broader macroeconomic ones, surely she will be asked about them and then I think we will see her strongly defending the Fed,” she said.

Yellen and Powell were driving forces behind the Fed’s recent decision to adjust its approach to monetary policy to allow inflation to run above average to boost wages and drive unemployment lower after years of undershooting the bank’s target. But while they share similar monetary policy views, disputes over financial regulation could bubble up once Yellen takes office.

Yellen has fiercely defended Dodd-Frank banking regulations and has warned of other vulnerabilities in the financial system. As the incoming chair of the Financial Stability Oversight Council (FSOC), Yellen may also steer the panel of federal regulators—which includes Powell— toward a more aggressive approach.

Powell, however, has supported rollbacks of some of those restrictions and has expressed a greater degree of confidence in the stability of the financial system. 

“I don’t think that they’re that far apart, but they’re not exactly the same place,” said Ian Katz, director of the Washington, D.C. research firm Capital Alpha Partners.

“He may be even closer to her on that in the regulatory arena than we think, but there are differences and I do think she’ll want to be a bit more aggressive on regulation in general than he would be.”

Several upcoming Fed vacancies may also change that dynamic. Biden is likely to take office with one of the Fed’s seven board seats open, and he will get to pick a new Fed governor to replace Randal Quarles as the Fed vice chair of supervision when his term leading the bank’s regulatory activities ends in October 2021.

Observers expect any differences between Yellen and Powell to be sorted out behind closed doors — not through the tweetstorms and public disagreements that defined Powell’s early relationship with Trump and late break with Mnuchin. And as the economy continues to suffer under the coronavirus pandemic, their early work will likely focus on areas of wide agreement.


“In many ways, they’re hitting the ground running,” said Sarah Binder, a political science professor at George Washington University who studies the Fed.

“There’s no period of trying to get to know the person on the other side,” she continued. “That greases the skids for making a productive relationship.”