Shifting chairs at the Fed; Quarles resigns, Brainard and Powell in play

By Theresa Sheehan
November 11, 2021

There are two issues to keep in mind with this week’s resignation of Federal Reserve Governor Randal Quarles: 1) the 14-year terms of governors; 2) the 4-year terms of chair, vice chair, and vice chair for supervision. All three chairs are or may soon be open.

For terms as governors, there is one vacancy right now on the board for the term ending January 31, 2024. At the end of December 2021, there will be another opening for the term ending January 31, 2032 when Quarles departs the board. Many fully anticipate a third vacancy when Vice Chair Richard Clarida’s term ends on January 31, 2022. While Clarida has been an exemplary vice chair, he is also a Trump appointee. It would be unusual if a new administration did not take this opportunity to put its stamp on the board with another governor.

The next question is when will the Biden Administration announce its nominees? Markets would certainly like to know, and candidates will need time to make their courtesy calls on the members of the Senate Banking Committee. Then the nomination hearings will have to be scheduled, after which the Senate Banking Committee issue its recommendation, followed by a full Senate vote. The process has all too often been contentious and lengthy in recent years, although some of that was due to the quality of the candidate put forward, as much as the political climate. If nominated this year, unless promptly confirmed, the nominations will have to be refreshed when the new Congress takes their seats in January.

Adding to the mix is that although Jerome Powell’s term as governor runs through January 31, 2028, it is highly unlikely that he would stay on if not renominated as chair. There’s also speculation that if Lael Brainard is not offered the position of chair, she might leave. However, she is also in the running for vice chair or vice chair of supervision, either of which she is well-qualified for.

So, President Biden could place as few as three, or as many as five Fed governors in the near term. The only remaining governors appointed during the Trump Administration would then be Christopher Waller and Michelle Bowman. Both are uncontroversial as governors and secure with terms ending on January 31, 2030 and January 31, 2034, respectively.

Powell’s term as chair ends February 4, 2022. It is unclear if Biden will reappoint him. Powell is not universally popular with Democrats, but he would get at least some bipartisan support. There’s an argument to be made for continuity at the Fed. Markets like Powell and would see him as an experienced hand at the monetary policy helm. No Fed chair escapes without some controversy and Powell has had his share in dealing with the volatility of the Trump Presidency and then the extremes of the pandemic. However, he has managed to navigate troubled times with dignity and steady determination. Given the risks to the outlook, there’s a real argument for no change in top leadership at the present.

Governor Lael Brainard’s name has come up as a possible Fed chair. As an Obama appointee she has standing with Democrats. She is an experienced policymaker both at Treasury and the Fed. She has expertise in several areas that are likely to be pressing issues for the Fed in the near future like fintech, cybersecurity, and cybercurrencies, as well as international finance. Although gender is unlikely to be a deciding factor, should Biden not go with Powell for a second term, there’s a certain value in appointing the second female chair of the Fed which has often been criticized for its lack of diversity at the top.

Vice Chair Richard Clarida’s term as vice chair ends September 16, 2022. However, as noted above, his term as governor is over as of January 31, 2022. While he can stay on as a governor until someone is nominated and confirmed to hold the term that will reset to January 31, 2036, it’s very possible he won’t be renominated as governor, much less vice chair. One possibility here is that Brainard’s name could be put forward as vice chair, a position that would involve less intense public scrutiny but still have immense responsibility and influence in the Fed leadership structure and development of monetary policy. Note that Stanley Fischer, the former head of the Central Bank of Israel who served on the Fed in 2014-2017, did not think the position beneath him.

While it is possible that a currently serving governor would get the nod for the vice chair for supervision, it’s unlikely. Although as we said, Brainard might be offered this job, it’s more likely that this chair will be paired with one of the governor vacancies.

In any case, the nominations put forward by President Biden are likely to be carefully selected for their applicable experience, moderate views, and balance in threading the partisan needle. The failure of some of the names put forward during the Trump Administration was related to the high partisan nature of the nomination and/or marginal theories about monetary policy. Then again, Republicans have been known to stymie nominations of perfectly qualified candidates by drawing out the process, as in 2010-11 with Nobel winner Peter Diamond who after 14 months finally withdrew his nomination. Delays in making nominations are as much about the difficulty of finding and vetting nominees, as they are of political timing.