Joe Biden is poised to decide whether to reappoint Jay Powell to a second term as Federal Reserve chair — or replace him — after weeks of uncertainty within his own Democratic party.
The US president is cutting it fine: with Powell’s tenure as head of the US central bank ending in February and Biden’s choice still needing to be confirmed by the Senate, investors are getting nervous.
This year the process has been particularly fraught, amid spiralling inflationary pressures and a trading scandal that has pummelled the Fed’s reputation since September.
Some Democrats are pushing to retain the experienced Powell, while others such as Massachusetts senator Elizabeth Warren — who has called him a “dangerous man” over his laissez-faire position on financial regulation — are pushing for a switch. Fed governor Lael Brainard has emerged as the leading alternative.
While this year’s drama has been unusual, the selection of a Fed chair is rarely uncontroversial. The president has to preserve the Fed’s independence while finding an economically like-minded central bank chief, and also carefully weigh the financial market impact and political viability of their choice.
“One lesson from history is that these appointment decisions . . . are not made in the abstract,” said Sarah Binder, a professor of political science at George Washington University. “The choice isn’t solely about whether the president favours the economic beliefs of one candidate over the other.”
Historically, US presidents have typically chosen continuity over change — but not always, and there are often some strains along the way. Here’s what some of Biden’s predecessors in the Oval Office had to contend with.
When Jimmy Carter entered the Oval Office in 1977, Arthur Burns was Fed chair and facing growing criticism for his handling of inflation since his first appointment by Richard Nixon. The following year Carter picked William Miller to take over the helm of the Fed, but the move backfired spectacularly. Miller was unable to tame inflation, and clashed with the Federal Open Market Committee.
In 1979 Carter was forced to make a monumental course correction in favour of Paul Volcker, a more ardent inflation fighter, to take over as head of the central bank, and appointing Miller as his Treasury secretary.
In the summer of 1983, Ronald Reagan was under heavy pressure to replace Volcker at the helm of the Fed. Reagan’s Treasury secretary Don Regan wanted the president to pick his “own man” for the job — Volcker was a Democrat — while Republican lawmakers such as Jack Kemp were pushing for a more ardent free-market candidate.
“Reagan had many, many reasons to pick a new person,” said Kaleb Nygaard, senior research associate at Yale University’s Program on Financial Stability.
With just six weeks to go until Volcker’s term expired, however, the president started his weekly Saturday radio address with what he described as a “news flash”, announcing that he had offered the Fed chair a second tenure.
“He is as dedicated as I am to continuing the fight against inflation,” Reagan said. Four years later, Reagan did decide to make his own pick for Fed chair, ushering in the Alan Greenspan era, which would last until 2006.
George HW Bush
In 1991 George HW Bush made one of the least controversial Fed chair appointments, tapping Greenspan for a second term in office. Even Milton Friedman, the Fed critic and Nobel Prize winning economist, grudgingly approved: “As long as [the Fed] exists, Alan is as good a person as there is,” The New York Times reported at the time.
Bush ended up being displeased with Greenspan, however, to the point of blaming the Fed for excessively tight policy, triggering the downturn that contributed to his electoral defeat to Bill Clinton in 1992.
Clinton did not face a choice over his Fed chair until the end of his first term, when he decided to tap Greenspan for his third term in office during his 1996 re-election campaign. A few Democrats strongly opposed the decision, including the Iowa senator Tom Harkin, who claimed that under Greenspan, “job growth and the living standards of average Americans have been sacrificed in the blind pursuit of inflation control”.
But Clinton was perfectly happy with Greenspan’s performance, and continued to be so until the end of his presidency. When Clinton tapped Greenspan for his fourth term in office, in the year 2000, he hailed a “rare combination of technical expertise, sophisticated analysis and old-fashioned common sense”.
George W Bush
George W Bush came into office in 2001 with Alan Greenspan serving in his fourth term as chair of the Fed. Greenspan had endeared himself to the Bush White House by giving cautious backing for his sweeping tax cuts — a policy he would later decry as mistaken — and the younger Bush tapped him for a fifth term in 2004.
The following year, Bush faced the daunting decision of selecting Greenspan’s successor — and ended up choosing Ben Bernanke, a sitting governor at the Fed, even though some Republicans supported the Stanford economist John Taylor. “Ben will replace a legend,” Bush said.
When Barack Obama entered office in the middle of the financial crisis, he had little choice but to reconfirm Bernanke for a second term in office, given the fragility of the markets and the banking system as it tried to claw its way out of the great recession.
He did so in August 2009, well ahead of the end of Bernanke’s term. Tensions flared up four years later, however, when Obama considered appointing former Treasury secretary Larry Summers as Fed chair, but progressive Democrats, including Warren, mounted a successful backlash against the idea.
In the end Obama tapped Janet Yellen, a longtime University of California professor who was serving as vice-chair of the central bank, to become the first-ever woman to hold the top job.
In November 2017 Donald Trump decided to nominate Powell, a Republican and Fed governor at the time, to be chair, breaking a tradition that had lasted since Carter of new presidents reappointing sitting central bank chiefs.
Trump did interview Yellen for a renewal of her post, and was impressed by her qualities. “I really like her a lot,” he told the Fox Business channel. But the president ultimately decided to make a change — according to The Washington Post, Yellen’s height might have been a factor.
Trump later came to regret his choice and would eventually publicly attack the central bank chief for his policies. “My only question is: who is our bigger enemy, Jay Powell or chair Xi?” Trump tweeted in August 2019, referring to the Chinese president Xi Jinping.