The Nobel Economist to Biden: Ditch Fed Chair Powell if you want to ‘build back better’
If US President Joe Biden is to achieve his “build back better” agenda, he shouldn’t appoint Federal Reserve Chairman Jerome Powell for another four-year term, Nobel-winning economist Joseph Stiglitz noted in an interview published Wednesday, joining a group of progressive lawmakers to advocate for new leadership at the country’s central bank.
“People have praised Powell a lot for supporting the economy during the pandemic… On the one hand, I agree with that,” Stiglitz, a professor at Columbia University with previous roles as Chief Economist of the World Bank and Chairman of the Council of Economic Advisers under the Clinton administration, Recount Reuters.
“On the other hand, it’s a bare minimum for qualifying. Almost any reasonable person would have done something similar,” Stiglitz said, referring to Powell’s implementation of interest rates close to zero and the Fed monthly purchases billions of dollars in government guaranteed bonds since March 2020.
“Is the Biden administration going to fulfill what is at the heart of its agenda?” Stigltiz asked. If so, he added, “it shouldn’t be Powell.”
Stiglitz berated Powell for his weak approach to financial regulation and reluctance to reduce climate risk. And, although Powell received to rent from some progressive economists for adopting monetary policies aimed at keeping unemployment low instead of just focusing on price stability, Stiglitz questioned whether the current Fed chairman was really determined to give the priority to full employment regardless of fears about inflation.
Powell’s four-year term as Fed chairman is due to expire in February 2022. With potentially up to four seats on the Fed’s board expected to be open, many progressive advocates have argued that it would be. a major mistake. for Biden to extend the tenure of Powell – a Republican candidate for former President Donald Trump with ties to the private equity industry – when he has the opportunity to remaking the American central bank.
Stiglitz, who “has not yet spoken to members of the administration about his point of view but” will likely engage “as the debate over Fed appointments continues,” identified the current governor of the Fed Lael Brainard as “the” only obvious candidate “, which would adopt a stricter regulatory position, push the Fed to take better account of climate risks and undoubtedly tolerate more risk of inflation to generate more jobs”, Reuters reported Wednesday.
While acknowledging that Brainard would be an improvement over Powell, Max Moran of the Revolving Door Project in July provided a shortlist of potential progressive Fed candidates that includes Lisa Cook, professor at Michigan State University, William Spriggs, AFL-CIO economist, and attorney Sarah Bloom Raskin, who previously served on the Fed Board of Governors.
According to a report released last month by Oil Change International, the Fed under Powell has “worked to maintain and increase US fossil fuel funding.” Fed funding for coal, oil and gas extraction persists despite recent reports from the International Energy Agency and the United Nations Intergovernmental Panel on Climate Change, which have both warned that preventing catastrophic levels of global warming requires moving away from fossil fuels quickly.
After Powell delivered a address the last month in which the climate crisis was not mentioned, Yevgeny Shrago of Public Citizen warned that the Fed “sleepwalks in climate chaos” and refuses to use its authority to mitigate risks.
In his conversation with ReutersStiglitz insisted that “financial stability requires dealing with poorly valued assets” that are expected to be devalued by extreme weather disasters or “stranded” as a result of the clean energy transition. “If there is a risk of mispricing, you need to include it” in the regulatory frameworks guiding investment decisions, he said.
Referring to his mid-1990s stint in the White House, Stiglitz criticized former President Bill Clinton’s decision to re-elect Republican Alan Greenspan as Fed chairman, a move that “[ed] stability and bipartisanship, “the media noted,” but allow[ed] Greenspan’s confidence in the markets and a looser approach to regulation to set the stage for the internet stock bubble and the subsequent and more serious housing market crash. “
“No one wants to disrupt the financial markets… There is political appeal in not rocking the boat,” Stiglitz said. “But in my opinion, we made a big mistake in renaming Greenspan… I hope Biden doesn’t do the same.”
As The American Perspectiveby David Dayen argued At the end of last month, the stakes surrounding the next Fed chairmanship appointment could not be higher.
“Whatever the choice,” he wrote, “they must recognize how closely their role is linked to the future of the planet”.