Why Didn't Joe Biden Go to War with Jerome Powell and the Federal Reserve?

As the 2022 midterms enter the final stretch, there has been broad agreement that Democratic candidates have lost tremendous ground on economic issues, and never hit upon a sustained and coherent plan to regain it. For the most part, this line of argument has devolved into counterproductive zero-sum infighting within Democratic policy and campaign circles, pitting the issue of “the economy” against campaign pitches around abortion rights in the post-Roe era or the fate of democracy in the still-rampaging Trump one.

Lost in this regress of ex post facto priority-setting was a larger question: Just what should Democrats have been saying about the specter of inflation and other economic ills? And how can such an appeal stick among the electorate, given that Jerome Powell’s Federal Reserve had embraced an overt policy of wage suppression and economic contraction in its crusade to tame inflation? For President Joe Biden to persuasively campaign for the Democrats’ congressional majorities on the basis of his not-inconsiderable suite of pro-worker policy achievements, he would have to make a political enemy of the Trump-appointed Powell, a former senior partner at the multibillion-dollar private equity fund The Carlyle Group, whom Biden had serenely renominated at the outset of his term.

Biden and other Democratic leaders clearly made the calculation that any campaign-season swipe at Powell’s Fed policies would be out of bounds, but the recent history of the Fed’s fortunes in Washington shows that it was not always so. “There’s a whole spectrum of presidential pressure on the Fed, from doing nothing to things like Nixon did with [then–Fed Chair] Arthur Burns, leaking the minutes of Fed meetings directly to the press,” says Tim Barker, a fellow with the Jain Family Institute. “And Biden’s very much been on the ‘nothing’ end of that spectrum. He’s been one of the executives least given to even pressure the Fed slightly, like actively emphasizing in his messaging that his policy aims are at odds with Powell’s. There was never an open acknowledgment that Fed policy has been counterproductive to the aims of the Inflation Reduction Act, or the stimulus and infrastructure legislation.… You know, even Jimmy Carter, who stands out for doing almost nothing, did criticize [then–Fed Chair Paul] Volcker in October 1980. Biden has done less than Carter did, which is rather amazing.”

Powell’s recent austerian rule at the Fed has also benefited from a hands-off posture among ground-level economic forces on the left, albeit for different reasons. “Insofar as there was a progressive left economic message focused on macroeconomic policy, its leaders did not have their shit together the way people who worked on antitrust did,” says Marshall Steinbaum, associate economics professor at the University of Utah and former research director and fellow at the Roosevelt Institute. “There was this whole fight over macro policy from 2015 to 2019, where people like [former Obama Council of Economic Advisers Chair] Jason Furman were saying at the end of the Obama administration that we were at full employment, we didn’t need to continue expanding. The left critique then was that, no, we should be expanding, since wages are stagnant. They were right—but they misinformed themselves by thinking, ‘Well, we’re so right about the facts that we defeated our enemies.’… It didn’t really matter what the ideology was; so what if Powell was a Trump appointee?”

This is a common miscue in much of the public discourse surrounding the Fed and its policies; the technocratic aura of monetary policy-making tends to shield it from questions of political direction and power. But this assumption is a massive category error; few subjects are of more pressing political import than the question of just reward for workers, or access to cheap credit for borrowers. It’s simply that the Fed, which has been staffed at the highest echelons by banking and investment professionals, doggedly pursues policies that reflect the shared preferences and interests of that constituency.