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There's a significant chance that Jerome Powell will not be renominated as Federal Reserve chair due to left-wing pressure on President Joe Biden, according to JPMorgan chief US economist Michael Feroli.
"Given the central bank's significant regulatory and supervisory powers, left-leaning voices in the administration likely will not want a Republican like Powell to remain chair," Feroli said in a note on Wednesday.
The JPMorgan economist's view goes against the consensus, with most commentators thinking Powell will be renominated after winning praise for his handling of the COVID-19 economic crisis. Powell was chosen as Fed chair by President Donald Trump and took office in 2018. His first time as chair is due to end in February 2022.
Feroli said Powell's decisive leadership during the pandemic had "justly received applause from economists and legislators across the political spectrum." But he said DC politics could well prevent Powell, a Republican who served in the administration of George H. W. Bush, from being reelected.
Feroli said Lael Brainard, an economist who has been on the Fed's board of governors since 2014, would be the most likely replacement for Powell. She is seen as "dovish" – that is, in favor of loose monetary policy.
The JPMorgan economist said Richard Clarida, who is currently vice chair of the Fed and whose term ends in January, may also not be nominated to serve again due to "the same political dynamics that may put Powell's job at risk."
Yet Feroli said that there is a limit to how much more dovish the Fed can become, given that it is currently laser-focused on keeping up support for the economy.
He also said: "There is a modest risk that if a leadership transition is viewed as too extremely dovish by the market, this may ironically induce a more hawkish policy response to insure the Fed hasn't completely lost inflation-fighting credibility."
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