Federal Reserve Chairman Jay Powell has shepherded the U.S. central bank through some of the most economically turbulent times in recent history with the COVID-19 pandemic and its aftermath.
While many economists give him relatively good marks for his performance, one small but important group does not: Republican presidential candidates who may decide whether he gets to keep his job after 2026.
Last week, Donald Trump, the GOP front-runner campaigning while out on bail from federal and state charges, said he would not reappoint Powell if he had the choice. On Friday, Trump’s vice president, Mike Pence, echoed that sentiment.
Disenchantment with the Fed runs deeper, though, than anger at Powell over inflation. Several candidates want to see the Fed’s mission statement be changed to focus solely on price stability, instead of its current “dual mandate” of low inflation and maximum job creation.
For a party attempting to adopt a Trumpian working-class populist patina after decades of being accused of being the party of the rich by Democrats, the move is puzzling.
Win McNamee via Getty Images
While the Fed says the two goals are not contradictory — low inflation helps the economy grow, providing more jobs to workers — a focus on price stability usually helps owners of capital, making sure their assets don’t lose value to inflation. And tighter monetary policy to keep inflation under control makes it harder to get or repay loans or start new businesses.
From the right, Powell has no shortage of critics in the GOP field. “I would not reappoint him,” Trump said about Powell in an appearance Thursday on Fox Business Network with Larry Kudlow, the supply-side economics proponent who served as National Economic Council director in Trump’s White House.
Trump accused Powell of being “always late,” presumably a criticism of the central bank’s slow start to raising interest rates as the economy recovered from COVID. “I’m not a fan of Jay Powell,” Trump said of the man he first appointed to office.
Pence, at a conservative conference in Atlanta on Friday, said, “If I’m president of the United States, we’re going to get a new chairman at the Federal Reserve,” drawing scattered applause.
Pence said the Fed should be focused “exclusively” on maintaining the integrity of the dollar and fighting inflation, and said other government officials should handle keeping employment high.
“Let’s hold our presidents and our senators and our congressmen and our governors responsible for making sure that we have full employment in the United States of America,” he said.
Another GOP candidate, biotech entrepreneur and conservative pundit Vivek Ramaswamy, has said the Fed’s mission should be to “stabilize the dollar,” though he defined stability as being “measured against a basket of currencies” in a video on his campaign website.
“And that should be their sole mandate,” he said.
“If I’m president of the United States, we’re going to get a new chairman at the Federal Reserve.”
– Former Vice President Mike Pence
Florida Gov. Ron DeSantis has not been as blunt about dropping the mandate, though he promised to appoint a Fed chief who would focus on a stable dollar instead of “the political pressures of the day.”
“The Fed must focus on stable prices; it is not a social engineer and cannot be allowed to be an unaccountable economic central planner,” his campaign wrote in their “Declaration of Economic Independence” released earlier this month.
The attacks on the dual mandate separate Republicans from Powell’s left-leaning critics. Rakeen Mabud of the progressive Groundwork Collaborative said the Fed chairman has already been too aggressive on inflation recently, and dropping the dual mandate would only make matters worse.
“Chair Powell has already deprioritized and undermined the full employment mandate of the Federal Reserve. Abandoning the full employment mandate would be a colossal mistake: our economy is only as strong as the workers who power it,” she said.
More mainstream economists have brighter assessments of Powell and the Fed’s performance in recent years, with most elected officials agreeing: The Senate voted 80-19 to reappoint Powell in May 2022.
Dean Baker, senior economist with the liberal Center for Economic and Policy Research, said even if Powell stumbled, he ended up in the right place.
“If we get back close to the inflation target (which they care about more than I do), without a big rise in unemployment, it would be hard not to give Powell a lot of credit,” Baker said in an email.
“He may have been shooting blindly through much of this (not an attack, none of us had ever seen an economy like this), but he hit the target anyhow.”
Mark Zandi, a former economic adviser to GOP presidential candidate John McCain in 2008 who has gained favor with Democratic office holders in recent years, said the “consensus is that Chair Powell has managed monetary policy reasonably well.”
“He may have been shooting blindly through much of this (not an attack, none of us had ever seen an economy like this), but he hit the target anyhow.”
– Dean Baker, senior economist with the Center for Economic and Policy Research
“The principal criticism of Powell’s stewardship is not raising rates sooner coming out of the pandemic, and not weighing against developing inflation. Of course, there was significant uncertainty regarding how the pandemic would unfold at the time, and Policy 101 says to err on the side of being overly accommodative in highly uncertain times,” Zandi wrote in an email.
Inflation hit a 40-year high in June 2022, rising 9.1% compared to the same month a year before. But it has come down in recent months, falling to 3.2% on a 12-month basis in July.
That surge hurt wages, which had been growing at a slower pace than inflation until recent months. With inflation slowing and wage growth continuing amid low unemployment, though, so-called real wages have been rising again.
Earlier in the year, most economists thought the U.S. was destined to fall into recession from a long series of interest rate hikes engineered by Powell, but it has shown unexpected resilience. Many economists have changed their tune to forecast a soft landing of lower inflation without the economy stalling out.
But the inflation episode led some in the GOP to take to heart past criticisms that the central bank was not focused enough on price stability.
While the dual mandate has been subject to some debate for a long time, the candidates have other more unorthodox ideas for the central bank.
DeSantis said he would prohibit it from issuing a digital currency, something it has already pledged not to do unless given a congressional OK. Ramaswamy said an inflation-focused Fed would not need 90% of its current workforce and thus its headcount could be cut by that much.
Pence did provide an alternative nominee to head the Fed, suggesting he would appoint “someone like” Judy Shelton. Shelton’s nomination to the Fed board under Trump stalled when three Republican senators opposed it. Shelton was known for advocating a return to the gold standard, which President Richard Nixon broke in the 1970s.
Baker and Zandi both said removing the employment mandate could mean longer, harder economic recoveries.
“While fiscal policy is definitely the more important tool to boost demand, monetary policy can provide an important supplement, especially when we have a president/Congress that doesn’t want to do stimulus,” Baker said, noting interest rate cuts were imperative in helping job growth after the Great Recession.