Powell hearing shows political pressures facing the Fed

Federal Reserve Chair Jerome Powell faced a Senate confirmation hearing for a second term leading the central bank Tuesday. It showed the exceptionally difficult political balancing act the Fed will face in the coming years.

Why it matters: Powell appears on track to be confirmed, but if so his second term will involve a gantlet of political and economic cross-pressures.

The big picture: Opening statements from Senate Banking Comittee Chair Sherrod Brown (D-Ohio) and Ranking Member Pat Toomey (R-Penn.) showed the ways the Fed finds itself in the middle of fraught political disputes.

• Brown urged the Fed to generate a hot labor market that generates gains for workers, focuses on diversity and racial equality and uses its powers to try to contain the risks of climate change.
• Toomey argued the Fed should move aggressively to rein in inflation, and attacked Fed regional banks for engaging on racial justice and climate issues.

What they're saying: "The troubling politicization of the Fed puts its independence and effectiveness at risk," said Toomey. "So let me be clear: If this politicization continues unchecked, it will not end well for the Fed"

Between the lines: Powell is a savvy political operator who is skilled at building bridges across partisan lines — as reflected in his appointments by Presidents Obama, Trump and Biden.

• Toomey said he will vote to confirm Powell despite misgivings about the direction of the Fed, as have a handful of other Republican senators. That smoothes the path to confirmation even with "no" votes from the left flank of the Democratic caucus.

What's next: Lael Brainard, Biden's nominee to be vice-chair of the central bank, faces a confirmation hearing on Thursday in which she is likely to face more pointed attacks on her role pushing the Fed to regulate the banking system more aggressively and focus more expansively on climate risk.

The bottom line: For Powell, confirmation looks like the easy part. The hard part will be guiding the Fed through the next four years as Democrats and Republicans have opposite visions for what it ought to do.