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    Fed Expected to Announce Plan to Slow Bond Buying Amid Rapid Inflation

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    The Federal Reserve is expected to announce a plan to taper off its bond buying. With inflation surging, economists’ eyes are already turning to rates.Jerome H. Powell, the Federal Reserve chair, is on the cusp of accomplishing something that would have seemed like a victory a year ago: Central bankers are expected to announce a plan to wean the economy off their asset-buying program on Wednesday without roiling markets, a delicate maneuver that was in no way assured.Instead, Mr. Powell and his colleagues face pressing questions about their next steps.Inflation is running at its fastest pace in roughly three decades, and hopes that the jump in prices will quickly fade have dimmed as supply chain snarls deepen and fuel costs rise. Wages are increasing swiftly, and consumers and businesses are coming to expect faster price increases, pumping up the risk that high inflation will become a fixture as employers and workers adjust their behavior.Though the Fed is expected to announce this week that it will slow the $120 billion in asset purchases it has been carrying out each month to support the economy, Wall Street economists have already turned their attention to how worried the central bank is about brisk inflation and whether — and when — it might start raising interest rates in response.“The question in the mind of the market is 100 percent what comes next,” said Roberto Perli, a former Fed economist who is now head of global policy at Cornerstone Macro.Slowing bond buying could lead to slightly higher long-term borrowing costs and take pressure off the economy at the margin. But raising interest rates would likely have a more powerful effect when it comes to cooling off the economy. A higher federal funds rate would cause the cost of buying a car, a house or a piece of equipment to rise and would slow consumer and business demand. That could tamp down price gains by allowing supply to catch up to spending, but it would slow growth and weigh on hiring in the process.The Fed has signaled that bond buying could wrap up completely by the middle of next year. Economists increasingly expect the Fed to move its policy rate up from near-zero, where it has been since March 2020, as soon as next summer.Goldman Sachs economists now expect a rate increase to come in July 2022, a full year earlier than they had previously anticipated. Deutsche Bank recently pulled its forecast forward to December 2022. Investors as a whole now put better than 50 percent odds on a rate increase by the Fed’s June 2022 meeting, based on a CME Group tool that tracks market pricing.But raising rates poses a risky trade-off for Fed policymakers. If inflation moderates as the economy gets back to normal and pandemic-related disruptions smooth out, higher borrowing costs could leave fewer people employed for little reason. And with a smaller number of paychecks going out each month, demand would likely weaken over the longer run, which could drag inflation back to the uncomfortably low levels that prevailed before the start of the pandemic.“The risk is not really about the Fed beginning its rate hikes behind the curve,” said Skanda Amarnath, executive director of Employ America, a group focused on encouraging policies that help the work force. “The risk is that the Fed overreacts to this.”That markets are penciling in rate increases more quickly could suggest that they are optimistic about the economy’s chances, said Neil Dutta, head of U.S. economics at Renaissance Macro. The Fed has said that before lifting rates, it wants to see the economy return to full employment and inflation that exceeds its 2 percent target and is on track to average it over time. Investors might think those targets will be met by the middle of next year.“If it was a problem, why aren’t stocks falling?” Mr. Dutta said of the earlier rate increase expectations. “The economy has done better than anticipated.”Still, millions of jobs remain missing from the labor market, and employment growth has slowed sharply. Payrolls expanded by just 194,000 jobs in September, and while fresh hiring data due on Friday is expected to show that companies added 450,000 workers in October, the trajectory is anything but certain.If workers take a long time to come back to the job market, either because they lack child care or fear contracting the coronavirus, it could be the case that the Fed finds itself in a conundrum where inflation is high but full employment remains elusive. Mr. Powell has signaled that such a situation, in which the Fed’s goals are in conflict, is a risk. But he has also said the economy is not there yet.The future of Jerome H. Powell as the Fed chair is being debated within the Biden administration, complicating the decision on rates.Stefani Reynolds for The New York Times“I do think it’s time to taper,” Mr. Powell said at a recent virtual conference. “I don’t think it’s time to raise rates.”Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Fed Ethics Office Warned Officials to Curb Unnecessary Trading During Rescue

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    Months later, some Federal Reserve leaders resumed their market activity, stoking a scandal now engulfing the central bank.On March 23 last year, as the Federal Reserve was taking extraordinary steps to shore up financial markets at the onset of the pandemic, the central bank’s ethics office in Washington sent out a warning.Officials might want to avoid unnecessary trading for a few months as the Fed dived deeper into markets, the Board of Governors’ ethics unit suggested in an email, a message that was passed along to regional bank presidents by their own ethics officers.The guidance came just as the Fed was unveiling a sweeping rescue package aimed at backstopping or rescuing markets, including those for corporate bonds and midsize-business debt. It appears to have been heeded: Most regional presidents and governors of the Fed did not engage in active trading in April, based on their disclosures.But the recommendation, which was confirmed by a person who saw the email, did not go far enough to prevent a trading scandal that is now engulfing the Fed and being leveraged against its chair, Jerome H. Powell, as the White House mulls whether to reappoint him before his leadership term expires early next year.The email could pose further trouble for the Fed, which declined to provide a copy, because it shows that central bank ethics officers — and officials in general — were aware that active trading could look bad when the Fed was taking emergency action to try to save markets and its policymakers had vast access to sensitive information. Despite the early warning, some top officials resumed trading after the most proactive phase of the Fed’s rescue ended, based on financial disclosures and background comments from regional bank spokespeople.Financial disclosures, first reported by The Wall Street Journal, showed that Robert S. Kaplan traded millions of dollars’ worth of individual stocks last year while he was head of the Federal Reserve Bank of Dallas. No dates are provided for those purchases and sales, but a Dallas Fed spokesman has said they did not take place between late March and the end of April.Another Fed official, Eric S. Rosengren, bought and sold securities tied to real estate while running the Federal Reserve Bank of Boston. Such securities are sensitive to Fed policy, and involve a market that Mr. Rosengren himself warned about in public speeches last year. His trading resumed in May, his disclosures show.Both Mr. Kaplan and Mr. Rosengren have since resigned from their positions, with Mr. Kaplan saying he did not want controversy around his transactions to distract from the Fed’s work and Mr. Rosengren citing health issues.Robert S. Kaplan traded millions of dollars’ worth of individual stocks while president of the Federal Reserve Bank of Dallas last year.Richard Drew/Associated PressWhile attention to the Fed’s ethics rules — and trading habits — started with its 12 regional branches, journalists and academics have begun to re-examine previously reported trades by Fed officials who sit on its board in Washington.Richard H. Clarida, the Fed’s vice chair, rebalanced a portfolio toward stocks in late February 2020, just before the Fed signaled that it stood ready to help markets and the economy in the face of the coronavirus pandemic. The timing has raised questions, though the transactions were in line with previous trading he had done. The vice chair has since said he has always acted “honorably and with integrity” while in public office.Mr. Powell also has faced backlash, primarily from progressives who do not want him reappointed, for selling holdings in a popular and broad stock index last October. The Fed was not rolling out new rescue programs at that time, and a spokeswoman has said Mr. Powell sold the holdings to pay for family expenses. Mr. Powell’s critics argue that he should not have made active financial transactions at all last year.As the ethics controversy swells, the Fed has been working to stem the fallout.Mr. Kaplan and Mr. Rosengren announced last month that they would step down, and Mr. Powell has said that “no one is happy” with the situation. He started a review of Fed ethics rules shortly after news of the presidents’ trading broke. He has also asked an independent watchdog to investigate the trades to make sure they complied with ethics rules and the law.But scrutiny has persisted, in part because Mr. Powell is up for reappointment.“It speaks to governance, incentives and general attitude,” said Simon Johnson, an economist at the Massachusetts Institute of Technology who previously wrote a post for Project Syndicate supporting Lael Brainard, a leading contender to replace Mr. Powell.Mr. Johnson, who does not personally know Ms. Brainard, a Fed governor, has been among those flagging Mr. Powell’s transaction to journalists. He has focused on the fact that Mr. Powell sold a stock-based fund while he was in regular contact with the Treasury secretary during an active year for the central bank, and said he thought the trading scandal should factor into the Fed chair’s reappointment chances.“Presumably, someone in the White House will pay attention and look at the details,” Mr. Johnson said.Lael Brainard, a Fed governor, is considered a leading contender to replace Mr. Powell as chair. Cliff Owen/Associated PressMr. Powell’s October transaction and the questions about it highlight that there is no time when Fed chairs can safely sell assets to raise cash should they need it, said Peter Conti-Brown, a professor and Fed historian at the University of Pennsylvania. That reinforces the need to update the Fed’s rules to eliminate any appearance of conflict by taking discretion away from officials, he said.“It’s hard for me to fault him that he did it when he did it,” Mr. Conti-Brown said, later adding that “it would be more a scandal for this trade to end Chair Powell’s career as a central banker.”The board’s March 23 guidance appears to have had some effect, because central bank officials overall conducted little or no active trading during the period last year when they were most active in markets, in March and April.Mr. Powell’s only dated transactions came in September, October and December. Mr. Clarida’s came in February and August. Ms. Brainard did not report any transactions last year.Randal K. Quarles, the Fed’s vice chair for supervision at the time, is shown to have bought a financial stake in a fund in early April; a family trust that his wife has an interest in bought an interest in a fund, which the couple sold before the fund purchased any securities, a Fed spokesperson said. Michelle Bowman, a Fed governor, noted a small sale in mid-April. That came from a retirement fund held in her spouse’s health savings account, and reflected the account’s closing as her husband changed jobs, a Fed spokesman said.At the regional banks, the heads in San Francisco, Minneapolis, Chicago, St. Louis and Kansas City, Mo., noted no disclosures or only college savings plan and retirement contributions last year. John C. Williams, the president of the powerful New York Fed, reported one personal transaction in December.The Fed president in Richmond, Va., reported private equity and bond transactions in July and August, and the Atlanta Fed president helped buy a property in Utah in June. The Cleveland Fed president reported buying index fund shares in February, but then stopped until November.The Philadelphia Fed president made several relatively small transactions throughout April and the year, but a spokeswoman for his bank said the spring trades were not active. They involved an automatic liquidation from a legacy fund that occurs every year, an automatic dividend reinvestment and a bond call.The fact that trading more or less halted last spring is a silver lining, Mr. Conti-Brown said. Regional reserve banks are quasi-private institutions, so it is not unambiguously clear that they must listen to the Board of Governors on such matters.“This tells us that the board’s ability to oversee ethics in the system is there,” he said. “What is missing is a better set of rules.” More

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    Fed Chair Jerome Powell Faces Reappointment Amid Tumult

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    Mr. Powell is facing down progressive pushback and an ethics scandal as the White House considers his future.As Jerome H. Powell’s term as the chair of the Federal Reserve nears its expiration, President Biden’s decision over whether to keep him in the job has grown more complicated amid Senator Elizabeth Warren’s vocal opposition to his leadership and an ethics scandal that has engulfed his central bank.Mr. Powell, whose four-year term as chair expires early next year, continues to have a good chance of being reappointed because he has earned respect within the White House for his aggressive use of the Fed’s tools in the wake of the pandemic recession, people familiar with the administration’s internal discussions said.But the decision and the timing of an announcement remain subject to an unusually high level of uncertainty, even for a top economic appointment. The White House will most likely announce Mr. Biden’s choice in the coming weeks, but that, too, is tenuous.The administration is preoccupied with other major priorities, including passing spending legislation and lifting the nation’s debt limit. But the uncertainty also reflects growing complications around Mr. Powell’s renomination. Ms. Warren, Democrat of Massachusetts, has blasted his track record on big bank regulation and last week called him a “dangerous man” to lead the central bank.She has also taken aim at Mr. Powell for not preventing top Fed officials from trading securities in 2020, a year in which the central bank rescued markets, potentially giving the officials privileged information. Two regional presidents traded for their own profit in assets that the Fed’s actions could have influenced, according to recent disclosures. And Richard H. Clarida, the Fed’s vice chair, moved money from bond funds into stock funds in late February 2020, just before the Fed hinted that it would rescue markets and the economy. “It is not clear why Chair Powell did not takes steps to prevent these activities,” Ms. Warren said during a Senate floor speech on Tuesday, after sending a letter on Monday calling for the Securities and Exchange Commission to investigate whether the transactions amounted to insider trading. “The responsibility to safeguard the integrity of the Federal Reserve rests squarely with him.”Asked on Tuesday whether he had confidence in Mr. Powell, the president said he did but that he was still catching up on events.The White House’s decision over Mr. Powell’s future is pending at a critical moment for the U.S. economy. Millions of jobs are still missing compared with before the pandemic, and inflation has jumped higher as strong demand clashes with supply chain disruptions, presenting dueling challenges for the Fed chair to navigate. The Fed’s next leader will also shape its involvement in climate finance policy, a possible central bank digital currency and the response to the central bank’s ethics dilemma.“This is starting to feel like an incredibly consequential time for the Fed,” said Dennis Kelleher, the chief executive of Better Markets, a group that has been critical of the Fed’s deregulatory moves in recent years and has criticized it for insufficient ethical oversight.The administration is under pressure to make a prompt decision, in part because the Fed’s seven-person Board of Governors in Washington will soon face a spate of openings. One governor role is already open. Mr. Clarida’s term ends early next year, leaving another vacancy, and Randal K. Quarles’s term as the board’s vice chair for supervision will expire next week, although his term as a governor runs through 2032.By announcing key picks soon, the Biden administration could ensure that someone was ready to step into Mr. Quarles’s leadership role. And nominating several officials at once could give the president a chance to show that he is heeding the concerns of Democrats in Congress, who want to see more diversity at the Fed and officials who favor tougher bank regulation.But the ethics scandal threatens to complicate the picks.Recent financial disclosures showed that Robert S. Kaplan at the Federal Reserve Bank of Dallas traded millions of dollars in individual stocks last year, and that Eric S. Rosengren at the Federal Reserve Bank of Boston traded real estate-tied securities even as he warned publicly about problems in that sector. The trades have drawn criticism because they occurred during a year in which the Fed hugely influenced a wide range of financial markets.Both men resigned from their roles as regional presidents amid the controversy, though Mr. Rosengren said he was leaving for health reasons.Attention has now turned to Mr. Clarida. All of his trades were in broad funds, not individual securities, and have been public since May, but have drawn attention amid the current reckoning. He sold a stake in a bond fund totaling at least $1 million and moved that money into stock funds on Feb. 27, 2020. The transaction gave him more exposure to stocks shortly before the Fed rolled out policies that goosed such investments.The Fed has said Mr. Clarida’s trades were part of a planned portfolio rebalancing, but declined to specify when the planning happened.Mr. Powell kicked off an internal ethics review last month. A Fed spokesperson said on Monday that an independent government watchdog would carry out an investigation into whether senior officials broke relevant ethics rules or laws.But some progressives have seized on the problems to bolster their case that Mr. Powell should not be reappointed. Jeff Hauser, the founder and executive director of the Revolving Door Project, which has urged Mr. Biden to keep corporate influence out of his administration, has pointed out that the Fed chair himself moved money around last year, listing 26 transactions, albeit all in broad-based funds. He also noted that Lael Brainard, a Fed governor and a longtime favorite to replace Mr. Powell if he is not reappointed, did not report any transactions year.“If you’re trying to go above and beyond, and be beyond reproach, not trading is the better option,” Mr. Hauser said.Senator Elizabeth Warren has called for the Securities and Exchange Commission to investigate whether top Fed officials engaged in insider trading in 2020.Stefani Reynolds for The New York TimesIt is not clear how much the blowback will ultimately fall on Mr. Powell. During his testimony to a Senate committee last week, lawmakers asked him about the ethics issues without explicitly blaming him for them.The trades were not historically abnormal. Mr. Kaplan transacted in stocks throughout his tenure, including when Mr. Powell’s predecessor, Treasury Secretary Janet L. Yellen, led the central bank. Ms. Yellen’s vice chair, Stanley Fischer, bought and sold individual stocks, his 2017 disclosures showed. Ms. Brainard herself has in the past made broad-based transactions. It was the Fed’s more expansive role in 2020 that spurred the backlash.Agencies often need a “wake-up call” to notice evolving problems with their oversight rules, said Norman Eisen, a senior fellow at the Brookings Institution and an ethics adviser in President Barack Obama’s White House.“My own view is that Chair Powell is pivoting briskly to address the weaknesses in the Fed’s ethics system,” he said. Ms. Warren cited regulation, not ethics issues, upon first announcing that she would not support Mr. Powell. Democrats have raised concerns for years about the deregulatory approach that the Fed has embraced under Mr. Quarles’s leadership. Mr. Powell has largely deferred to his vice chair for supervision as the central bank made bank stress tests more transparent and enabled big banks to become more intertwined with venture capital.Critics say reappointing Mr. Powell amounts to retaining that more hands-off regulatory approach. And some progressive groups suggest that if Mr. Powell stays in place, Mr. Quarles will feel emboldened to stick around: He has hinted that he might stay on as a Fed governor once his leadership term ends.That would mean four of seven Fed Board officials — a majority — would remain Republican-appointed. Two other governors — Michelle W. Bowman and Christopher J. Waller — were nominated by President Donald J. Trump.During Mr. Powell’s Senate testimony last week, Ms. Warren said renominating him as chair meant “gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again.”Even without Ms. Warren’s approval, Mr. Powell would most likely draw enough support to clear the Senate Banking Committee, the first step before the full Senate could vote on his nomination, because of his continued backing from the committee’s Republicans. But having a powerful Democratic opponent whose support the administration needs on other legislative priorities is not helpful.The Fed chair does have some powerful allies in the administration, including Ms. Yellen, the Treasury secretary. But the decision rests with Mr. Biden.“I know he will talk to many people and consider a wide range of evidence and opinions,” Ms. Yellen said on CNBC on Tuesday. More

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    Janet Yellen says she supports eliminating the debt limit.

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    Treasury Secretary Janet L. Yellen said on Thursday that the statutory debt limit should be abolished, arguing that the borrowing cap is “destructive” and poses unnecessary risks to the economy.She made the comments at a House Financial Services Committee hearing, as the United States faces an Oct. 18 deadline to raise or suspend the debt limit. Ms. Yellen warned on Thursday that failure to act would be “catastrophic” for the economy and said she supported proposed legislation to do away with the limit because it blocks the government from carrying out spending that Congress has authorized.“I believe when Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making,” Ms. Yellen said. “And if to finance those spending and tax decisions it is necessary to issue additional debt, I believe it is very destructive to put the president and myself, as Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions.”The debt limit was instituted in the early 20th century so the Treasury did not need to ask for permission each time it needed to issue bonds to pay bills. The first debt limit was part of the Second Liberty Bond Act of 1917, according to the Congressional Research Service. A general limit on the federal debt was imposed in 1939.Republicans are refusing to join Democrats in raising the debt limit, insisting that they act alone in protest of big spending packages that Democrats hope to enact. At Thursday’s hearing, Ms. Yellen said dealing with the debt limit should be a bipartisan responsibility, because it allows the government to repay debts that were incurred by Democrats and Republicans.If the debt limit is not addressed by the Oct. 18 deadline, Social Security payments will be delayed, troops might not receive their paychecks on time, and interest rates for mortgages and car loans could spike.Ms. Yellen also warned that an erosion of confidence in the security of U.S. Treasury debt would be a “catastrophic event.” More

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    The world’s top central bankers see supply chain problems prolonging inflation.

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    The world’s top central bankers acknowledged that inflation, which has spiked higher across many advanced economies this year, could remain elevated for some time — and that though they still expect it to fade as pandemic-related supply disruptions calm, they are carefully watching to make sure that hot price pressures do not become more permanent.Jerome H. Powell, the Federal Reserve chair, spoke Wednesday on a panel alongside Christine Lagarde, president of the European Central Bank; Andrew Bailey, governor of the Bank of England; and Haruhiko Kuroda, head of the Bank of Japan.Mr. Powell noted that while demand was strong in the United States, factory shutdowns and shipping problems were holding back supply, weighing on the economy and pushing inflation above the Fed’s goal of 2 percent on average.“It is frustrating to acknowledge that getting people vaccinated and getting Delta under control, 18 months later, still remains the most important economic policy that we have,” Mr. Powell said. “It is also frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse.”“We see that continuing into next year, probably, and holding inflation up longer than we had thought,” Mr. Powell said.The Fed chair’s comments aligned closely with those of Mr. Bailey and Ms. Lagarde, who also cited uncertainties around persistent supply-chain bottlenecks as a risk.“We’re back from the brink, but not completely out of the woods,” Ms. Lagarde said of the economic rebound. “We still have uncertainty.”She said supply-chain disruptions were accelerating in some sectors, while energy price increases were an area to watch, along with potential new waves of the coronavirus pandemic that might be vaccine-resistant.“Monetary policy can’t solve supply-side shocks,” Mr. Bailey said. “What we have to do is focus on the potential second-round effects from those shortages.”The joint appearance of some of the world’s most powerful economic officials, sponsored by the European Central Bank, came during a turbulent week in financial markets. While stocks were rebounding on Wednesday morning, they had fallen sharply on Tuesday as government bond yields rose. Investors have been shaken by a political standoff over the debt ceiling in the United States, problems in China’s heavily indebted property sector, the reality that global central banks are preparing to dial back economic support and the possibility that recent rapid price gains might last.The burst in inflation has swept Europe and the United States this year as consumer demand booms but factory shutdowns and shipping snarls keep many goods in short supply. Central bankers have consistently argued that those price increases will prove temporary. As businesses adjust to the postpandemic recovery, they say, supply-chain kinks will unravel. And while consumers have been spending down savings stockpiled during the pandemic and padded by government stimulus, those will not last forever.But economic officials have increasingly acknowledged that while they expect the inflationary pop to be temporary, it may last longer than they initially anticipated.In the United States, consumer price inflation came in at 5.3 percent in August, and the Fed’s preferred inflation gauge — the personal consumption expenditures, or P.C.E., index — grew 4.2 percent in the year through July. August P.C.E. data is slated to be released on Friday.Consumer prices are expected to peak “slightly above” 4 percent later this year in Britain, double the central bank’s target.Elsewhere in Europe, inflation is also high, though the jump has not been as large. Euro-area inflation came in at 3 percent in August, the highest reading in roughly a decade. But price gains there are expected to slow more materially over the coming years than in Britain and the United States.Japan is a notable outlier among developed economies, with slow demand and inflation near zero. Weak inflation leaves central banks with less room to help the economy in times of trouble, and can fuel a cycle of economic stagnation, making it a problem.Central bankers in continental Europe, Britain and America have been wrestling with how to respond to the jump in prices. If they overreact to inflation that is temporarily elevated by factors that will soon fade, they could slow labor market recoveries unnecessarily — and may even doom themselves to a future of too-low inflation, much like the situation Japan faces.But if shoppers come to expect consistent inflation amid today’s burst, they may demand higher wages, fueling an upward cycle in prices as businesses try to cover climbing labor costs.Monetary policymakers want to avoid such a situation, which could force them to raise interest rates sharply and spur a serious economic slowdown to tank demand and tame prices.“There’s a tension between our two objectives: maximum employment and price stability,” Mr. Powell said. “Inflation is high, well above target, and yet there appears to be slack in the labor market.”“Managing through that process over the next couple years, I think, is the highest and most important priority, and it’s going to be very challenging,” he added.For now, most top global officials are preaching patience, while moving to gradually reorient their policies away from full-blast economic support. The Fed is preparing a plan to slow its large-scale bond buying, which can keep money pumping through the financial system and lower many types of borrowing costs, even as its policy rate remains at rock bottom. The Bank of England has signaled that policy will need to be tightened soon, and the European Central Bank is slowing its own pandemic-era purchase program.“The historical record is thick with examples of underdoing it,” Mr. Powell said, noting that economic policymakers tend to underestimate economic damage and under-support recoveries. “I think we’ve avoided that this time.” More

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    Elizabeth Warren Calls Jerome Powell a ‘Dangerous Man’

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    Senator Elizabeth Warren, Democrat of Massachusetts, blasted the Federal Reserve chair, Jerome H. Powell, for his financial regulation track record and said that she would not support him if the White House renominated him, calling him a “dangerous man to head up the Fed.”Mr. Powell’s term as head of the central bank ends in early 2022, and the Biden administration is considering whether to reappoint him. Mr. Powell, a Republican, was nominated to the Fed’s Board of Governors by former President Barack Obama and elevated to chair by former President Donald J. Trump.While some prominent Democratic economists and advocacy groups support Mr. Powell, who has been intensely focused on the labor market during his term as Fed chair, some progressives openly oppose him. They often cite his track record on financial regulation — as Ms. Warren did to his face on Tuesday, as he testified before the Senate Banking Committee.“The elephant in the room is whether you’re going to be renominated,” Ms. Warren said, looking down at the Fed chair during the hearing. “Renominating you means gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again.”Ms. Warren, and those who agree with her, have worried that leaving Mr. Powell in place will prevent the Fed from taking a tougher stance on financial regulation. Mr. Powell has said that when it comes to regulatory matters, he defers to the Fed’s vice chair for supervision, noting that Congress created that job to lead up bank oversight following the 2008 financial crisis.“I respect that that’s the person who will set the regulatory agenda going forward,” Mr. Powell said during a news conference last week. “And furthermore, it’s fully appropriate to look for a new person to come in and look at the current state of regulation and supervision and suggest appropriate changes.”Ms. Warren’s colleague Senator Michael Rounds, a Republican from South Dakota, followed her scathing comments by saying that Mr. Powell deserved to be renominated, and that he looked forward to working with him for the next several years.The White House has so far given little indication of whom it will pick to lead the central bank.President Biden already has the opportunity to fill one open governor position at the Fed, and several other roles will soon become available: The governor seat of the Fed’s vice chair, Richard Clarida, will expire in the coming months, as will Randal K. Quarles’s position as vice chair for supervision. The openings could give the administration a chance to remake the central bank from the top with its nominations, who must pass Senate confirmation.Other lawmakers at the Senate hearing pushed Mr. Powell to focus on improving diversity at the central bank — highlighting another key concern among Democrats as the leadership shuffle gets underway.Senator Sherrod Brown, a Democrat from Ohio and the head of the Senate Banking Committee, pointed out that there had never been a Black woman on the Federal Reserve’s Board of Governors in Washington, while also referring to reporting from earlier this year that showed a dearth of Black economists at the central bank.He asked if Mr. Powell believed that the central bank should have a Black woman on its Board of Governors.“I would strongly agree that we want everyone’s voice heard around the table, and that would of course include Black women,” Mr. Powell said. “We of course have no role in the selection process, but we would certainly welcome it.”Lisa Cook, a Michigan State University economist, and William Spriggs, chief economist of the labor union AFL-CIO, are often raised as possible candidates for governor positions or leadership roles. Both are Black. Lael Brainard, a white woman who is currently a Fed governor, is frequently raised as a possible replacement for Mr. Powell if he is not renominated, and Sarah Bloom Raskin, a white woman who is a former top Fed and Treasury official, is often suggested as a replacement for Mr. Quarles.Mr. Powell, as he noted, has no formal role in selecting his future colleagues at the Fed Board.He and his colleagues at the Fed Board will, however, have a chance to weigh in on who will take over two newly open positions around the Fed’s decision-making table. The central bank has 19 total officials at full strength, seven governors and 12 regional bank presidents.Robert S. Kaplan, the Dallas Fed president, and Eric S. Rosengren, the Boston Fed president, both announced their imminent retirements on Monday, amid widespread criticism of the fact that they were trading securities in 2020 — during a year in which the Fed unrolled a widespread market rescue in response to the pandemic.Mr. Powell addressed that scandal on Tuesday, pledging to lawmakers that the Fed would change its ethics rules and saying that the Fed was looking into the trading activity to make sure it was in compliance with those rules and with the law.“Our need to sustain the public’s trust is the essence of our work,” Mr. Powell said, adding that “we will rise to this moment.”Beyond grabbing headlines, the departures will leave two regional bank jobs available at the Fed. The regional branches’ boards, except for bank-tied members, will search for and select replacement presidents. The Fed’s governors in Washington have a “yes” or “no” vote on the pick.The Fed has never had a Black woman as a regional bank president, either. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, is the first Black man to serve in one of those roles.At the Board of Governors, Mr. Quarles’s leadership term ends most imminently, on Oct. 13. His position as governor does not expire until 2032, and he has signaled that he will likely stay on as a Fed governor at least through the end of his leadership term at the Financial Stability Board, a global oversight body, in December. Mr. Powell’s leadership term ends in early 2022, though he could stay on as governor since his term in that role does not expire until 2028. Mr. Clarida will have to leave early next year unless he is reappointed. More

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    Janet Yellen and Jerome Powell warn that the Delta variant is slowing the recovery.

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    America’s two top economic policymakers will warn lawmakers on Tuesday that the Delta variant of the coronavirus has slowed the economic recovery but will convey optimism about the economy’s overall trajectory, according to prepared remarks.Treasury Secretary Janet L. Yellen and the Federal Reserve chair, Jerome H. Powell, will testify before the Senate Banking Committee as the U.S. economy is at a crossroads, with businesses facing labor shortages and consumers coping with rising prices amid a resurgent pandemic. Congress is also grappling with a thicket of legislative challenges in the coming days, all of which could have an impact on the economy. They include extending federal funding to avoid a U.S. government shutdown, raising the debt limit to prevent defaulting on the nation’s financial obligations and passing President Biden’s infrastructure and social safety net packages.“While our economy continues to expand and recapture a substantial share of the jobs lost during 2020, significant challenges from the Delta variant continue to suppress the speed of the recovery and present substantial barriers to a vibrant economy,” Ms. Yellen will say, according to her prepared remarks. “Still, I remain optimistic about the medium-term trajectory of our economy, and I expect we will return to full employment next year.”The testimony will offer Ms. Yellen and Mr. Powell a chance to publicly press lawmakers to take action to raise or suspend the nation’s borrowing cap and to warn of the calamitous consequences if the United States defaulted on its obligations. Ms. Yellen has cautioned that debt-limit brinkmanship is eroding confidence in the United States and that a default, which could happen as soon as mid-October, would do irreparable harm to the economy.For weeks, Ms. Yellen has been quietly pressing lawmakers to put politics aside and ensure that the United States can continue to meet its fiscal obligations. She has been in touch with Wall Street chief executives and former Treasury secretaries as she looks to keep markets calm and find allies who can help her make the case to recalcitrant Republicans, who believe Democrats must deal with the debt limit on their own.“It is imperative that Congress swiftly addresses the debt limit,” Ms. Yellen will say. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”Mr. Powell is slated to tell senators that the Fed will continue to support the economy with its monetary policies, which influence how expensive it is to borrow and spend. But he will also make it clear that Fed officials will act if a recent jump higher in prices persists.“Inflation is elevated and will likely remain so in coming months before moderating,” Mr. Powell is prepared to say, based on remarks released Monday afternoon.He will cite the lingering coronavirus pandemic as a risk to the economic outlook, according to his prepared statement.Mr. Powell has also fretted about the debt limit in recent weeks, saying during a news conference last week that default is “just not something that we should contemplate,” and that “no one should assume that the Fed or anyone else can protect the markets or the economy in the event of a failure, fully protect in the event of a failure to make sure that we do pay those debts when they’re due.”Ms. Yellen and Mr. Powell will testify again on Thursday before the House Financial Services Committee. More

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    Kaplan and Rosengren, Fed Presidents Under Fire for Trades, Will Step Down

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    Robert S. Kaplan will exit his role as head of the Federal Reserve Bank of Dallas next month. Eric S. Rosengren, the head of the Federal Reserve Bank of Boston, is also retiring earlier than planned.Eric S. RosengrenSteven Senne/Associated PressRobert S. KaplanAnn Saphir/ReutersTwo Federal Reserve officials embroiled in controversy for trading securities that could have benefited from the central bank’s 2020 intervention in financial markets announced on Monday that they would leave their positions.Robert S. Kaplan, who heads the Federal Reserve Bank of Dallas, will retire on Oct. 8, according to a statement released Monday afternoon. Mr. Kaplan’s statement acknowledged the controversy as the reason for his departure. Eric S. Rosengren, the president of the Boston Fed, will retire this Thursday, accelerating his planned retirement by nine months. Mr. Rosengren cited health reasons for his early departure.The resignations followed the Fed’s announcement this month that Chair Jerome H. Powell had ordered a review of the central bank’s ethics rules in light of the concern surrounding the trades. When asked about his confidence in Mr. Kaplan and Mr. Rosengren during a news conference last week, Mr. Powell expressed displeasure with what had happened.“No one on the F.O.M.C. is happy to be in this situation, to be having these questions raised,” Mr. Powell said, referring to the policy-setting Federal Open Market Committee. He added, “This is an important moment for the Fed and I’m determined that we will rise to the moment.”Mr. Kaplan noted in his statement that it was his decision to leave the Fed, and that “the recent focus on my financial disclosure risks becoming a distraction” to the central bank’s economic work.Mr. Kaplan drew scrutiny for buying and selling millions of dollars in individual stocks, among other investments, last year — trading first reported on by The Wall Street Journal on Sept. 7. He has maintained that his trades were consistent with Fed ethics rules.Mr. Rosengren announced on Monday morning that he was retiring earlier than planned to try to prevent a kidney condition from worsening, in the hopes of staving off dialysis. The Boston Fed president came under criticism because he held stakes in real estate investment trusts, which invest in and sometimes manage properties, and listed purchases and sales in those in 2020. He spent last year warning publicly about risks in the commercial real estate market, and was helping to set Fed policy on mortgage-backed security purchases, which can help the housing market by improving financing conditions.Both presidents had previously announced that they would convert their financial holdings into broad-based indexes and cash by Sept. 30.Mr. Powell offered statements of support for both of the retiring officials in the news releases announcing their exit.But the controversy has pushed him into a delicate position. His own term as Fed chair expires early next year, and the White House is actively considering whether to reappoint him. A scandal at his central bank is sure to draw questions from senators when he testifies this week, and could even hurt his reappointment chances.As chair, Mr. Powell has also focused on shoring up public support in the central bank and explaining its role. He holds frequent news conferences, aims to speak in simpler language, and championed a series of “Fed Listens” events where top central bank officials meet and hear from community members whom they might not otherwise interact with — from community college students to local food pantry staff.The 2020 trading disclosures, which are shaping up to be the most headline-grabbing scandal the central bank has faced in years, risk chipping away at the widespread trust he has been working to build.Responses to Mr. Kaplan and Mr. Rosengren’s trading disclosures have been swift, and scathing. The group Better Markets had been calling for the Fed to fire both presidents if they did not resign. Other progressive groups had called for at least one of them to be ousted, and ethics watchdogs have said that the rules that had enabled their trades needed to be revisited.After the resignation announcements on Monday, Wall Street promptly began to assess what the departures would mean for monetary policy. Both officials have tended to worry about financial stability, and for that reason were likely to favor removing monetary policy support sooner than some of their colleagues — a stance often referred to as being hawkish.“Their exit will take out two of the nine more hawkish Fed officials who saw a 2022 rate hike as of the September F.O.M.C. meeting last week and remove important voices on financial stability issues in particular,” Krishna Guha at Evercore ISI wrote in a note to clients shortly after the announcement.Mr. Rosengren has been president of the Boston Fed since 2007, and his retirement was previously planned for June. The Fed’s 12 regional members rotate in and out of voting seats, and Mr. Rosengren would have had a vote on monetary policy next year. Mr. Kaplan would have voted in 2023.Kenneth C. Montgomery, the Boston Fed’s first vice president, will serve as interim president at that bank. The Boston Fed’s board members — excluding bank representatives — will need to select a permanent pick for president, subject to approval from the Fed’s Board of Governors in Washington.A longtime Fed employee who worked in research and bank supervision before becoming president, Mr. Rosengren played a key role in the 2020 crisis response. His regional Fed ran both the money market mutual fund and Main Street lending backstop programs that the Fed rolled out last year.The Boston Fed noted in the release that Mr. Rosengren hoped that his health condition would improve, and that he would be able to “explore areas of professional interest” in the future.Mr. Kaplan has been at the head of the Dallas Fed since late 2015, before which he taught at Harvard University and had a long career at Goldman Sachs. Meredith Black, that bank’s first vice president who had planned to retire, will serve as interim president until a successor is named, the Dallas Fed said. More