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Jerome Powell during a virtual news conference. Photo: Daniel Acker/Bloomberg via Getty Images

Federal Reserve Chairman Jerome Powell faces a long, hot summer audition for a second term, with senators watching and weighing his response to potential signs of inflation.

Why it matters: The financial system's chief is one of the most powerful in the world. President Biden hasn’t given any public indication whether he’ll renominate Powell, but Democrats close to the administration say there's a chance he'll make an announcement by Labor Day — well before Powell’s term ends next February.

  • “Everybody's replaceable and there's good people out there,” said Sen. Jon Tester (D-Mont.), a member of the Senate Banking Committee. “Biden could certainly pick somebody as good as Powell. But, you know, Powell is a proven guy."
  • Sen. John Kennedy (R-La.) told Axios: “He's placed a big bet right now on inflation and it worries me. And that's probably going to determine, to a large extent, whether he's reappointed.”

The intrigue: Powell, a lawyer by training and former Republican Treasury official, stays in close contact with the senators who would confirm any nominee.

  • “I talked to him about a week ago; he called me up,” Sen. Lindsey Graham (R-S.C.) told Axios. “We’re going to try to put a dinner together with some other senators next week.”
  • “He’s extremely responsive,” said Sen. Pat Toomey (R-Pa.), the senior Republican on the Banking Committee. “I think I am scheduled to meet with him next week.”

The big picture: The chair of the Federal Reserve has enormous power to determine the pace of economic growth and must sometimes pursue policies that could hurt an incumbent president's re-election prospects.

  • Powell continues to argue the post-pandemic uptick in prices is temporary, though the Fed indicated Wednesday it expects interest rates will rise in 2023.
  • Investors have expressed confidence in Powell’s approach to any potential inflation — and his ability to respond quickly, if warranted.
  • But congressional Republicans are seizing on last month's 5% jump in the Consumer Price Index as proof that Biden is overspending and the Fed is buying too many bonds.

What they're saying: “There is a lot of inflation out there right now,” said Sen. Richard Shelby (R-Ala.). “Let’s see what the Fed does and what they can do.”

  • “He’s a nice man. I’ve known him and I have helped him,” Shelby said. “I think he has a real challenge in the making.”
  • Inflation “is something that he has to consider, but the chair has a great deal of respect among members of Congress," said Sen. Ben Cardin (D-Md.).

Between the lines: Fed chairs are traditionally renominated for a second term, in part to reinforce the central bank and chairperson’s independence from politics.

  • President Trump upended that model and replaced Janet Yellen with Powell in the fall of 2017.
  • Trump further challenged Fed norms by publicly badgering Powell to keep interest rates low and then asserting, without evidence, that he had the ability to fire him.
  • Biden has made a point of honoring the Fed’s independence and said in April that he had not spoken to Powell.

Be smart: While a president gets to choose who to nominate, he or she also has to listen to what the markets are saying.

  • “Markets probably want the certainty of Powell,” Tester told Axios. “There’s some predictability there.”

Go deeper

Senate GOP pushes DOJ to roll back Trump oversight rule

Photo: Chip Somodevilla/Getty Images

Senate Republicans want the Justice Department to roll back Trump-era restrictions on congressional oversight criticized at the time as an attempt to insulate the Trump administration from Democratic investigators, Axios has learned.

Why it matters: While some Republicans spoke out against the DOJ guidance at the time, it was mostly Democrats who attacked it as a constitutionally dubious effort to scuttle congressional oversight. Now the shoe is on the other foot, and the GOP is making similar arguments with Biden in the White House.

Top economic regulators stressed by vacancies

Illustration: Annelise Capossela/Axios

The boom times are all around us (from corporate deal sprees to the breakneck rise of cryptocurrency) — and the agencies in charge are stretched thin trying to police it.

Why it matters: Overwhelmed staff and a slew of vacant posts could set back President Biden's big regulatory agenda.

Updated 4 hours ago - World

UK government: Kremlin has plan "to install pro-Russian leadership" in Ukraine

British Foreign Secretary Elizabeth Truss. Photo: Gints Ivuskans / AFP via Getty Images

The United Kingdom's Foreign Secretary on Saturday night said the government has "information that indicates the Russian Government is looking to install a pro-Russian leader in Kyiv as it considers whether to invade and occupy Ukraine."

Driving the news: U.S. National Security Council spokeswoman Emily Horne called the intelligence "deeply concerning" in a statement to Axios. The Biden administration has said Russia is actively manufacturing a pretext for invasion and warned that Putin could use joint military exercises in Belarus as cover to invade from the north.