Federal Reserve Chairman Jerome Powell has been urging Congress to provide more fiscal aid, but a deadlock between Republicans and Democrats has blocked a second stimulus package.
Against that background, Treasury Secretary Steven Mnuchin’s announcement last week that he would not seek an extension of Treasury-backed Fed facilities was immediately given a political spin. Mnuchin's response to the backlash: even though the medical emergency of COVID-19 is not over, the financial emergency is.
“These are emergency tools, and when the emergency is over let’s put them away,” he said. He added that corporate and municipal bond markets are functioning well and don’t need further government support—citing two markets where he will let facilities expire.
The Fed pushed back at first, saying it would prefer to keep its full suite of tools, but Powell quickly acceded to the request to return an unused $455 billion to Treasury.
Biden Treasury Pick Moves Forward; Shelton Fed Nomination Loses Ground
The fracas came as critics say the Trump administration is attempting to hobble an incoming Biden administration. The Democratic president-elect, in the meantime, is preparing to name his candidate for Treasury Secretary and former Fed officials head the lists circulating in the rumor mills.
In fact, former Fed Chair Janet Yellen is considered one of the leading contenders for the post, along with current Fed governor Lael Brainard, a former Treasury official who is the only surviving appointment to the Fed by the Obama administration. Either would be the first woman Treasury secretary.
Two other candidates on the short list are former Fed Vice Chairman Roger Ferguson, and current Atlanta Fed President Raphael Bostic. Either of them would be the first African American to take the post. Ferguson last week announced his retirement as CEO of financial services giant TIAA-CREF. Sarah Bloom Raskin, a former Fed governor and Treasury official, also appears on some lists.
The outlook has grown less bright for the nomination of economist Judy Shelton to the Fed board of governors. While it seemed Senate Majority Leader Mitch McConnell was poised to push through her confirmation last week despite opposition from two Republicans in his 53-47 majority, a third lawmaker, Lamar Alexander, announced his opposition.
Then two other Republican senators went into quarantine after testing positive for COVID-19, so they could not be present for last week’s procedural vote, which consequently failed. Chuck Grassley of Iowa and Rick Scott of Florida have since been joined by Kelly Loeffler of Georgia, further jeopardizing the slim Republican majority.
Democratic Senator-elect Mark Kelly ousted Republican Martha McSally in Arizona’s special election and may be seated as soon as next week, lengthening the odds for a Shelton confirmation even further.
Republicans opposed to Shelton are concerned that she is outside the mainstream of economists in her positions and does not seem to be a firm believer in keeping the Fed politically independent.
Whether Trump nominee Christopher Waller, chief economist at the St. Louis Fed, will win confirmation in December’s lame-duck session remains to be seen. He enjoys bipartisan support and could be confirmed if McConnell puts him up to a floor vote.
In any case, the incoming administration will probably have at least one appointee on the Fed board, if Shelton falls through, and two or three, if Waller misses out or Brainard moves to Treasury.
Amid all the politicking, Fed policymakers had less to say last week about monetary policy. Atlanta’s Bostic said in a CNBC interview ahead of the Mnuchin announcement that he thought the Fed’s emergency lending facilities should be extended “well beyond the crisis period,” even though uptake has been slow.
Fed Vice Chairman Richard Clarida made similar remarks at the beginning of the week in a Brookings Institution webcast. In a speech largely devoted to how policymakers might calibrate interest-rate policy more flexibly to achieve an average 2% inflation rate over time, Clarida said the Fed wants to keep all its tools available during the pandemic. He also said policymakers have discussed changes in its asset-purchase program if needed.