By the time U.S. markets closed on Friday, a government shutdown had been averted at the last minute while a debt ceiling suspension had yet to be passed by Congress, and Democrats continued their heated intramural debate over a spending bill, but investors were left with a new concern this week thanks to a growing sense that Jerome Powell might not be a shoo-in to keep his job as chairman of the Federal Reserve when his term ends in February.
Powell’s reign at the Fed has been criticized for accommodating Wall Street, and the central bank’s response to COVID-19 has increased its commitment to low-interest rates and bond purchases. But while those policies might have helped keep markets and the economy aloft during a pandemic, it has drawn the ire of some Washington Beltway power players on the left flank of President Joe Biden who is set to renominate Powell for a second four-year term in February.
On Tuesday, U.S. Senator Elizabeth Warren excoriated Powell during a Senate Banking Committee hearing, taking him to task for what she said was his support of big Wall Street banks without proper oversight.
“Over and over, you have acted to make our banking system less safe,” the Massachusetts Democrat told Powell. “And that makes you a dangerous man to head up the Fed. And that is why I will oppose your nomination.”
While the verbal lashing was not Warren’s first swipe at Powell, it came during an especially difficult week for the nation’s embattled central banker.
In addition to inflation staying troublingly high thanks to persistent supply bottlenecks resulting from the lockdowns imposed during the pandemic, both Federal Reserve Bank of Dallas President Robert Kaplan and Federal Reserve Bank of Boston President Eric Rosengren announced their early retirements on Monday in the wake of recent disclosures that both men were actively trading stocks while setting US monetary policy.
Those exits were seen as victories for Warren, who remains the most vocal member on the left and is widely thought to favor Fed Governor Lael Brainard as the next chair thanks to her track record of being much less cozy with Wall Street.
Brainard is considered to be considerably more dovish than Powell on monetary policy and would likely postpone policy tightening to get employment numbers lower and might not be as itchy to use interest rate hikes to attack inflation.
Markets may have shown their concern for Powell’s suddenly shaky grip on his chairmanship with the Dow Jones Industrial Average
DJIA,
falling 1.4% for the week and both the S&P 500
SPX,
and Nasdaq Composite
COMP,
posting their worst weeks since Feb 26.
For investors, concerns about Powell not being renominated go hand-in-hand with Brainard being Biden’s February nominee.
“Have you heard another name mentioned in the Fed Chair conversation in the past few…
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