Janet Yellen has dedicated most of her professional life to the Federal Reserve. She served in its highest-ranking roles, including as president of the Federal Reserve Bank of San Francisco, on its Washington-based board and as the central bank's first female chair. When President Donald Trump decided to replace her in that role in 2017, she was sorely disappointed.
Now, as Treasury secretary, Yellen is getting another chance to shape the future of the institution. She will be a critical voice in deciding who ought to lead the central bank in what some see as a once-in-a-generation opportunity to remake an institution that shepherds the United States' economy and helps to regulate its largest banks.
Jerome Powell's term as chair, which began in 2018 after Trump picked him to take over for Yellen, ends in February. Slots for the vice chair and the Fed's top bank regulator will also be up for grabs soon, and a position on the Fed's Board of Governors is already vacant. Assuming officials leave once their leadership terms end, the Biden administration may, in quick succession, be able to appoint four of the Fed's seven board members, powerful policymakers who have constant votes on monetary decisions and exclusive regulatory authorities.
Many progressive Democrats are pushing to oust the moderate Powell and replace him with a candidate who is focused on tight financial regulation, climate change and digital money — most likely Lael Brainard, a member of the Fed's board of governors. Powell's supporters see him as a champion for full employment, and would like him to be retained as a sign that competent leadership is rewarded.
It's unclear where Yellen's preferences lie, but it's common knowledge that she was unhappy when Trump broke a tradition of reappointment in her case.
Many who would like to see Powell replaced play down the role she will have in shaping President Joe Biden's decision. But Treasury secretaries have traditionally been central to the Fed selection process, helping to advise and guide the president toward a choice that will be welcome on both Wall Street and in the Senate, which has to confirm nominees to the Fed board.
Yellen's views will carry significant weight in the deliberations, coloring both who is considered and the ultimate outcome. Discussions over the pick are also being held among Brian Deese, director of the National Economic Council; Ron Klain, the president's chief of staff; and Cecilia Rouse, chair of the Council of Economic Advisers, according to people familiar with the deliberations. Biden will have the final word.
Conversations over who should lead the institution could stretch into October, as they have in past Fed leadership decisions. But speculation over who will win the top jobs is already rampant.
The Treasury Department declined to comment.
The argument for replacing Powell, a Republican who was appointed as a Fed governor by President Barack Obama, has to do with things other than traditional interest rate policy. Democrats typically say he has done a relatively good job when it comes to guiding the economy using monetary tools.
Under Powell's leadership, the Fed parried Trump's pressure campaign to lower rates when the economic backdrop was solid, and it reacted rapidly and effectively to the economic collapse triggered by the pandemic. The Fed is also credited with averting a financial crisis early last year as key markets seized. Powell's Fed revamped its entire policy framework last year to focus more concertedly on achieving a strong job market that extends its benefits to as many people as possible.
Yellen has repeatedly praised Powell's performance.
"He's doing extremely well," she told The New York Times in early 2020, discussing Powell's conduct as he came under attack from the Trump White House.
But Powell has opponents among more progressive groups. He often deferred to the Fed's vice chair — a Trump appointee — for supervision when it came to regulation, regularly voting for tweaks to bank and financial rules that chipped quietly away at post-crisis financial reforms. He has also been criticized by climate focused groups for being too slow to elevate the Fed's role in policing environment-related finance. Climate activists plan to protest at the Fed's annual symposium in Jackson Hole, Wyoming, this year, and Powell "will be a key target," Thanu Yakupitiyage, head of U.S. communications at 350.org, said in an email. The group is one of the protest's key organizers.
Regulation and climate are key reasons some Democrats are lining up behind Brainard, the Fed governor and another leading candidate. Brainard, who also has a good relationship with Yellen, opposed Trump administration efforts to lighten bank oversight by loudly dissenting against a spate of regulatory decisions, often releasing meticulous statements detailing where they went awry.
She is seen as a powerful and effective Fed governor, one who played a key role in shaping pandemic response programs. And while they are closely aligned on monetary policy, she has distinguished herself from Powell by pushing for a bigger role for the Fed on climate issues and a more proactive stance toward developing a digital currency.
She also could help to anchor a leadership team that could usher in a fresh era for the Fed, her supporters argue.
Andrew Levin, a former Fed economist, is one of several people who are pushing the idea that the White House appoint Brainard as chair and Sarah Bloom Raskin, a former top Fed and Treasury official, to the central bank's top regulatory job. Levin, now a professor of economics at Dartmouth, would also favor nominating as vice chair Lisa Cook, a professor from Michigan State University who has researched racial disparities and labor markets and has worked to improve diversity in economics.
That group would be diverse, compared with the Fed's typically white and male leadership team. The Fed has been led by a woman — Yellen — for just four of its nearly 108 years. If appointed vice chair, Cook would be the highest-ranking Black woman in its history.
"It's a package deal that should work together," Levin said. "This administration wants to send a message that they care about all of the people who are slipping through the cracks."
Those aren't the only names floated for key positions. William Spriggs, chief economist at the AFL-CIO (and himself a fan of keeping Powell in the top job), is also on some lists for the vice chair or a governor.
Progressive groups have been talking to lawmakers, arguing that Powell should be replaced, and key Democrats are sympathetic to some of their arguments.
"My concern is that over and over, he has weakened the regulation here, he has led the Fed to ease up there," Sen. Elizabeth Warren, D-Mass., said on Bloomberg TV earlier this month. "We need someone who understands and uses both the monetary policy tools and the regulatory tools to keep our economy safe."
But whether such objections will kill Powell's chances remains to be seen. Powerful Democrats attuned to the issue, such as Sen. Sherrod Brown of Ohio, have not signaled definitively that they would vote against Powell were he renominated. Even if Powell is retained, fresh faces in the other key jobs could inject diversity and expertise on issues like climate and financial oversight into the Fed's top ranks.
And another argument is working in Powell's favor: Tradition.
When Trump replaced Yellen, he bucked a long-standing practice in which Fed chairs were reappointed if they had done a good job, regardless of their political background. The tradition is in part a nod to the fact that the Fed is meant to be independent of partisan politics.
Democrats and their allies were infuriated.
The decision was "seemingly rooted in simple-minded partisanship that demanded a Republican president replace a Democratic appointee as Fed chair," Josh Bivens, research director at the typically liberal Economic Policy Institute, wrote in a statement at the time. "This decision breaks a long-standing norm of not elevating partisanship over competence when picking Fed chairs."
Bivens, in an email last week, said the norm "is pretty broken," but that the decision to replace a Fed chair should still come down to whether the incumbent has done a good job. There's a strong case for keeping Powell based on his monetary policymaking at a moment of fierce debate over the Fed's policy direction, he thinks.
Yellen remains mindful of the tradition. She reacted sadly in 2018 to Trump's decision to replace her, saying during a CBS News interview that she had made it clear she would have stayed on and felt a "sense of disappointment."
"It is common for people to be reappointed by presidents of the opposite party," she said.
This article originally appeared in The New York Times.