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Federal Reserve Chairman Jerome Powell testifies during a House Financial Services Committee hearing in Washington, D.C., on Sept. 30. Powell's term expires early next year, and President Biden must decide whether to reappoint him. // UPI/Bloomberg via Getty Images, Sarah Silbiger

The chair of the Federal Reserve has one of the most powerful economic jobs in the world, with the ability to move markets with a single phrase.

Under Jerome Powell's leadership, the Federal Reserve has been instrumental in steering the economy from the depths of the pandemic in a quest to claw back the 22 million jobs that were lost.

Now, President Biden has to decide whether Powell should keep his own job. It's a decision that has gotten more complicated as some progressives such as Sen. Elizabeth Warren, D-Mass., wage a fight against his reappointment as a stock trading controversy dogs the Fed.

Here are some key questions as Biden decides what to do.

Powell's four-year term as Fed chairman is set to expire in February. Traditionally, U.S. presidents have not changed Fed leaders, even when the party in control of the White House changes.

That's meant to insulate the central bank from partisan politics. But former President Trump ignored that tradition when he dumped then-chair Janet Yellen and nominated Powell in 2017 (Yellen is now the country's Treasury secretary).

Before the pandemic, Powell was steering an economy near full employment. The Fed raised interest rates, a decision that made Powell a frequent punching bag for Trump, who worried it would slow down the economy and hurt the then-president's reelection prospects.

But once the pandemic struck, the Fed quickly slashed rates to near zero to support the economy. Powell launched a series of emergency lending programs and pumped trillions of dollars into the economy in an effort to avert a long recession and speed the recovery. He has been especially focused in recovering the lost jobs.

Some of those efforts fell short, but Powell has generally received high marks for his economic stewardship.

Lately, however, Powell has come under scrutiny as inflation continues to stay high. Powell has argued that the surge in price pressures will prove "transitory" as pandemic-related disruptions to the supply chain ease.

But some economists worry that inflation could prove harder to reverse.

Some of the arguments against Powell have less to do with interest rates and monetary policy than another vital function of the Fed: supervising banks.

Sen. Warren, who sits on the Senate Banking Committee, is one of Powell's most outspoken critics. She accuses him of watering down the banking regulations that Congress adopted after the financial crisis.

"Over and over, you have acted to make our banking system less safe," Warren told Powell during a committee hearing last month. "And that makes you a dangerous man, to head up the Fed."

Former Sen. Chris Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., who authored the banking regulation law, have defended Powell and said he deserves a second term.

Still, Warren and other progressive Democrats want Biden to replace Powell with someone else. A top alternative candidate is Lael Brainard, a member of the Fed's board of governors who was appointed by former President Barack Obama.

Most recently, critics have also faulted Powell over allegations of unethical trading activity by other top Fed officials.

The Wall Street Journal and Bloomberg reported last month that two regional Fed bank presidents were actively trading stocks and other securities in 2020 while the Fed was heavily involved in financial markets.

In addition, a Fed vice chairman sold bonds and bought stocks worth at least $1 million just days before the Fed announced an emergency rate cut.

All three men have defended their trades as permissible under existing ethics rules. But Powell has acknowledged those rules need tightening, and he has ordered a review of the trades by the central bank's inspector general.

It's a critical time for the economy, and whether it's under Powell or somebody else, the Fed will be navigating a policy minefield.

Job growth has slowed sharply in the past two months as the delta variant of the coronavirus hit the economy after strong job gains over the summer.

Meanwhile, inflation is still running well above the Fed's long-term target of 2%.

Fed policymakers are preparing to gradually scale back the amount of money the central bank is pumping into the economy, but they don't want to move too quickly and see the recovery stall out.

As chairman, Powell has steered the central bank toward a policy that is more committed to full employment, even if that means tolerating somewhat higher inflation in the short run.

However, he has stressed that the Fed will use its tools (namely, higher interest rates) to crack down if prices appear to be spiraling out of control.

It's doubtful that an alternative nominee would be any more aggressive when it comes to promoting jobs or keeping interest rates low. Any policy differences are more likely to revolve around things like bank regulation and the Fed's role in battling climate change.

Powell would almost certainly win bipartisan backing in the Senate for a second term, while a more progressive-friendly nominee might face a tougher battle.

Biden has to weigh how much blowback he's willing to tolerate from the left wing of his party and how much political capital he wants to spend pushing a Fed nominee through the Senate.

Additionally, Biden is likely to take heat from Republicans over inflation next year if rapid price hikes continue through the midterm election.

Having a Republican like Powell in charge of the Fed which is the government's primary inflation watchdog could give the White House a measure of political cover at a time when Republicans are using surging prices as an attack line heading to the 2022 midterms.

Oddsmakers say Powell is still the prohibitive favorite to be nominated for a second term, but his chances are not quite so high as they were in early September.

The White House has not said when it will make a decision, but previous presidents have typically made the call no later than November, to allow time for Senate confirmation.

See more here:
What's at stake as Biden decides whether to stick with Jerome Powell as Fed chief | NPR - Houston Public Media