Nobel laureate and senior Democratic economist Stiglitz says Fed’s Powell should leave

WASHINGTON (Reuters) – In order for US President Joe Biden to stick to his agenda, he shouldn’t be re-appointing Jerome Powell as Federal Reserve chairman, said Joseph Stiglitz, Nobel Prize-winning economist and longtime Democratic adviser , in an interview that pleaded in favor of a remake. from the management of the Fed.

FILE PHOTO: Columbia University professor Joseph Stiglitz speaks at the China Development Forum in Beijing, China March 24, 2019. REUTERS / Thomas Peter / Pool / File Photo

“People have praised Powell a lot for supporting the economy during the pandemic… On the one hand, I agree with that,” Stiglitz, now a professor at Columbia University, said during a telephone interview with Reuters on Friday.

“On the other hand, it is the bare minimum for a qualification. Almost any reasonable person would have done something similar, ”Stiglitz said of the near zero interest rates and monthly bond purchases Powell has maintained since March 2020.

Rather, Biden should examine Powell’s softer approach to financial regulation, his reluctance to incorporate climate-related issues into the Fed’s banking supervision, and check his “gut instinct” as to whether Powell would also be attached to the Fed. full employment if inflation remains higher than expected.

“Is the Biden administration going to fulfill what is at the heart of its agenda? … It shouldn’t be Powell,” Stiglitz said, calling current Fed Governor Lael Brainard an “obvious candidate” , which would take a stronger position. regulatory position, push the Fed to take better account of climate risks and undoubtedly tolerate more inflation risk in order to generate more jobs.

Stiglitz said he has yet to speak to members of the administration about his point of view but will “likely engage” as the debate over Fed appointments continues.

His comments, as the former head of President Bill Clinton’s Council of Economic Advisers, former World Bank chief economist and 2001 Nobel Laureate in Economics, add a weighty voice to a debate that has pitted the stability represented by Powell calls for using what could represent up to four open seats on the board of directors of seven members of the Fed to reshuffle the US central bank.

Powell’s four-year term as president ends in February. Some Biden supporters who are following the Fed more closely have argued that he should get a second term to complete a policy change that puts more weight on the job boost and further courts the risk of inflation for the country. to do.

He is also favored for a rollover by market participants, including some who argue it would be risky to make him a lame duck from the Fed as the central bank navigates a noticeable shift towards post-pandemic monetary policy. .

The matter is under active discussion, but Biden has not made a final decision and White House press secretary Jen Psaki declined to comment on the president’s schedule on Tuesday. Some progressive voices in the president’s Democratic Party have said that extending the tenure of one of those appointed by former Republican President Donald Trump with close ties to the private equity world would be a missed opportunity.

BEAT THE BOAT

Any change could spark a tough battle for confirmation in the equally divided US Senate. At the same time, key Democratic figures like Massachusetts Senator Elizabeth Warren and Ohio Democrat Sherrod Brown, chair of the Senate Banking Committee, have so far denied any public approval from Powell.

Climate change and financial regulation are at the heart of the arguments against it.

“Financial stability requires dealing with the mispricing of assets’ likely to be affected by extreme weather events or to be ‘stranded’ as global energy choices change, said Stiglitz. “If there is a risk of bad pricing, it must be included” in the stress tests and regulations applied to banks.

Powell said the primary response to climate change must be defined by America’s elected leaders. When pushed by lawmakers, he characterized the Fed’s climate work as more focused on its impact on long-term economic performance, and did not embrace liberal calls to impose capital requirements. more stringent associated with climate risk as part of the Fed’s “short-term stress”. tests ”which assess how bank portfolios react to economic shocks.

Tackling climate change has been a central goal of the Biden administration, and Stiglitz argued he should embrace these and other values ​​he campaigned on.

Stiglitz called Clinton’s reappointment of then Fed Chairman and Republican Alan Greenspan as, ultimately, flawed – promoting stability and bipartisanship, but allowing Greenspan’s confidence in the markets and an approach. more passive regulation set the stage for the Internet stock market bubble and and a more serious housing market crash.

Perhaps the weakest argument for Powell, Stiglitz argued, is that he represents the path of least resistance.

“No one wants to disrupt the financial markets … There is a political appeal in not rocking the boat,” he said. “But in my opinion, we made a big mistake in renaming Greenspan … I hope Biden doesn’t do the same.”

Reporting by Howard Schneider; Additional reports by Nandita Bose; Editing by Andrea Ricci

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