Federal Reserve Chairman Jerome Powell testifies during the Senate Committee on Banking, Housing and Urban Affairs hearing reviewing the CARES Act Quarterly Report to Congress on September 24, 2020, in Washington, DC.

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We will soon know what the leadership of the Federal Reserve will look like under President Joe Biden.

The president is expected to decide this fall whether to stay with President Jerome Powell, whose term ends in February, or to put one of his esteemed colleagues in charge of one of the world’s most powerful economic institutions.

Wall Street pushes Biden to re-elect Powell for a second term. But progressives are calling for a new face at the top of the central bank.

The post of chairman of the Fed isn’t the only job up for grabs. The term of Vice President Randal Quarles, the central bank’s regulatory contact, will expire in October. And it all means Fed Governor Lael Brainard could be eligible for promotion.

Policy advisers who spoke to CNBC about the Fed’s turnover said the Biden administration was considering sending its nominations as a package to the Senate Banking Committee in September. They pointed out that the research progress is underway and the timeline may change depending on Biden’s decision to rename Powell.

Last month, Mike Feroli, chief US economist at JPMorgan, strongly indicated Wall Street’s fear of a possible replacement for Powell.

“Fed Chairman Powell’s response to the financial crisis and COVID-19 recession has been aggressive, creative and determined; his leadership during this period has rightly received applause from economists and lawmakers from all political backgrounds. “

But, said Feroli, “He is now at risk of losing his job.”

Place the pieces

It’s because Progressive Democrats want Brainard to replace Powell.

Its advocates say it would push the Fed to put more emphasis on banking regulation, income inequality and climate change.

Some Democrats, such as Biden’s Treasury Department candidate Graham Steele, have said it would be a “huge missed opportunity” not to replace Powell with a woman or a member of a minority to head an institution long dominated by white men.

Feroli said Powell delighted progressives by doubling the Fed’s commitment to maximum jobs across all demographic groups, but the group was still frustrated by the former investment banker’s reluctance to s’ tackle issues such as the economic impacts of climate change.

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The White House declined to comment for this story and has not publicly indicated whether the administration is seeking a new president. Perhaps the closest the Biden administration was to a public comment was Treasury Secretary Janet Yellen’s comments to CNBC last month.

Yellen, who made history as the first woman to head the Fed, said the central bank had “done a good job” under Powell’s tenure.

When asked if she is backing Powell for a second term, Yellen said she would keep that opinion private for now. She will likely play an inordinate role in advising the president since Powell and Brainard were Fed governors while Yellen was central bank chairman.

The Treasury Department declined to comment further on this story.

Yellen’s praise for the Powell Fed may have deflated some progressive Democrats, who are hoping Biden will take the opportunity to install a member of his own party.

“There are two dimensions. And one is how much [Powell] helped and encouraged the Fed as a whole to deregulate further than Congress may have asked, ”said Mike Konczal, director of macroeconomic analysis at the left-wing Roosevelt Institute.

“The second question is whether the Fed could be more creative in the way it uses its powers,” he continued. “Can the Fed be much more aggressive on climate change? Could it have been much more aggressive in the crisis by strengthening the balance sheets of states and local municipalities.”

“These are two separate issues,” Konczal said. “And progressives think Powell failed on both.”

Despite progressive concerns, Powell has a long list of allies on both sides of the political aisle and is still seen on Wall Street as likely to retain his presidency. Its commitment to insulating the Fed from political influence and its track record during the 2020 recession won it praise from Republicans and Democrats.

Former President Donald Trump, who promoted Powell to head of the Fed, has repeatedly attacked the Fed chief for what Trump saw as high interest rates. But most Republicans in Congress, including North Carolina Rep. Patrick McHenry, signaled their continued support for the 68-year-old Powell.

“You have won and deserve another term as chairman of the Federal Reserve,” McHenry, the House Financial Services Committee’s top Republican, said in July. “You have proven to be a firm hand throughout this pandemic and the ongoing recovery, and you have stood up for the independence of the Fed.”

Brainard and Quarles

Progressives are not unanimous on their preferred candidate, but many argue that Brainard represents a sweet spot between keeping Powell’s interest rates low and tighter banking regulation.

Brainard was a key lieutenant for Powell throughout the Covid crisis and for years supported the Fed’s growing focus on maximum employment through easy money policies. But it has regularly opposed its decisions to relax certain banking regulations imposed after the 2008 financial crisis.

Lael Brainard, Governor of the U.S. Federal Reserve, listens during an event sponsored by the Economic Club of New York in New York, the United States, Tuesday, September 5, 2017.

Marc Kauzlarich | Bloomberg | Getty Images

But Powell isn’t the only Fed member open to criticism for easier banking regulation, and his fate depends on how Biden chooses to fill another key position.

Quarles’ term expires in October and offers progressives another great opportunity to install a more demanding banking supervisor.

Biden will almost certainly seek to replace Quarles as vice president of supervision given his background at the Fed and pressure from progressives to better regulate banks.

Quarles, a former investment fund manager and former head of the Republican treasury, has angered Democrats since joining the Fed in 2017 for what they see as his risky and pro-labor industry approach .

Under his leadership, the Fed in 2019 rolled back liquidity and capital rules for major U.S. banks beyond what many Democrats in Congress had expected during the 2018 partial cancellation of the Dodd-Frank Act. 2010.

Randal Quarles

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“Your term as president expires in five months and our financial system will be more secure when you leave,” Senator Elizabeth Warren, D-Mass., Told Quarles at a hearing in May. “I urge President Biden to fulfill your role with someone who will keep our financial system safe.”

It’s less clear who Biden is considering for Quarles’ job, but Brainard could be a candidate if the president is to keep Powell. Economist Lisa Cook, favorite of the Chairman of the Senate Banking Committee, Sherrod Brown, in Ohio, is also being considered for a position at the central bank.

A spokesperson for the Federal Reserve board did not respond to CNBC’s call for comment.


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