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Federal Reserve Chair Jerome Powell listens during a Senate Banking Committee hearing on Capitol Hill in Washington on Dec. 1, 2020.

Al Drago/The Associated Press

Over the past year Federal Reserve Chair Jerome Powell has engineered the largest economic rescue in U.S. history, thrown a controversial lifeline to companies hard hit by the coronavirus pandemic and steered a sweeping labour-friendly revamp of monetary policy that any presidential administration would welcome.

Is it enough to earn the 68-year-old former investment banker four more years as the head of the U.S. central bank? That question will get increased attention during this, the final year of Powell’s term, and the conversation may start as early as this week when the Fed chief delivers his semi-annual update on the economy in two hearings before Congress.

The testimony before the Senate Banking Committee on Tuesday and House of Representatives Financial Services Committee on Wednesday will be Powell’s first since President Joe Biden and his fellow Democrats took control of the White House and Capitol Hill.

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While the body of work Powell can show Biden on monetary policy is extensive – so much so that there’d seem little reason to replace him when his term expires next February – he may face scrutiny over the Fed’s moves to relax regulations on financial institutions.

Those steps were often opposed by the left flank of the Democratic Party as well as Fed Governor Lael Brainard, a 59-year-old economist who is seen as the most likely person to replace Powell if Biden decides to put out a “Help Wanted” sign.

Brainard is prominent in Democratic policy circles and has played a key role in shaping Fed policy since she was appointed to the U.S. central bank in 2014 after serving in the Obama administration’s Treasury Department.

Senators Elizabeth Warren and Bernie Sanders are among the progressives who opposed Powell’s appointment as Fed chief in 2018, as did then-Senator Kamala Harris, who is now Biden’s vice president. The hearing on Tuesday before the Senate Banking Committee, of which Warren is a member, may provide a gauge of how deep that opposition still runs.

“Is there anything else this White House could, if it was inclined to, ask of the Fed? Not much,” Alan Blinder, a former Fed vice chair who is now a Princeton University professor, said of a central bank that is locked firmly into a pledge to get the economy back to full employment as fast as possible. That’s also the Biden administration’s top economic priority.

“Biden is going to be quite happy with the performance of the Fed chair. The market is going to be quite happy with the performance of the Fed chair. (Treasury Secretary and former Fed chief Janet) Yellen will only have good things to say. But there will be Democrats urging him to replace Powell with a Democrat.”

POLICY OR POLITICS?

Politics traditionally has not been a concern when it comes to the Fed, an institution expected to stay out of Washington’s partisan battles, and one where U.S. presidents have often crossed party lines to reappoint their predecessors’ picks for the central bank’s top job. Along with guiding U.S. monetary policy, the Fed chief is perhaps the most influential official in global finance.

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Reappointing Powell would restore a bipartisan approach, as well as continue policies that, step by step, have been elevating issues Biden often cites, including advancing racial equity.

A moderate by temperament, Powell over the past two years had the Fed delve deep into how the central bank influences the job market. In the end, policymakers not only decided they could do much more to champion the cause of attaining maximum employment – one of the central bank’s two statutory mandates – but redefined the concept as something that needed to be “broad-based and inclusive.”

“Powell is fully committed to the president’s priorities of getting the economy back to full employment as fast as possible, and easing the financial stress on low-income households and disadvantaged groups,” said Moody’s Analytics economist Mark Zandi, who expects Powell to get another four-year term.

Enter the politics.

Powell, a Republican, past private equity executive, and native of the suburban professional class enclave of Chevy Chase, Maryland, was first appointed to the Fed’s Board of Governors in 2012 by then-President Barack Obama. He has spent more time than his predecessors cultivating lawmakers from both parties in Congress. Those relationships could mean, for Biden, a potentially pain-free reconfirmation for a key economic policy maker in broad alignment with the president’s agenda – and stability where it matters.

But Powell was also the man former President Donald Trump promoted to replace Yellen, in a move that not only broke the bipartisan mould, but did so in favour of someone with arguably lesser economic credentials.

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At the time, Powell had hoped to become the Fed’s vice chair to oversee financial regulation, a role well-aligned with his career as a Wall Street lawyer and investor. His leap to the top job was unexpected, and he would readily acknowledge Yellen’s influence over his own understanding of the position.

After a year in which the Fed itself has discussed openly its institutional weaknesses in diversity as well as past blindness to how its policies failed many workers, there may be more than a few calls for Biden to put his mark on the central bank’s leadership.

Dennis Kelleher, president of the Better Markets think tank and a member of the Biden transition team on the Fed and regulatory issues, said Powell can be lauded for his handling of the current crisis but should also be held to account for the central bank’s regulatory decisions – terrain where Brainard’s dissenting votes “are a very good road map to where and how far they got the deregulation wrong.”

For example, under Powell and Randal Quarles, the Fed’s vice chair for supervision, the central bank has rolled back restrictions on certain trading activities by banks and given them more advance information about their annual stress tests. A Trump appointee, Quarles’ term expires in the fall, giving Biden yet more scope to reshape the Fed.”When you add up the deregulation by the Federal Reserve under the Trump administration it amounts to a significant weakening of critical financial protection rules, and Chair Powell should be required to answer to that,” Kelleher said. “It is not the case that there are just one or two or three people who can do that job.”

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