(Bloomberg) -- The Senate Banking Committee’s top Republican sharply criticized Federal Reserve Chairman Jerome Powell Tuesday for tolerating what he considers to be the politicization of the nation’s central bank.
In an interview with Bloomberg News, Senator Pat Toomey of Pennsylvania, unlike many other Republicans, did not endorse Powell for another term as Fed chair. His criticism comes as President Joe Biden deliberates over whether to renominate Powell, or pick someone like Democratic Fed Governor Lael Brainard, the favorite of some outside liberal groups.
Powell, a Republican, was nominated to the Fed Board by President Barack Obama and elevated to chair by President Donald Trump.
“I think he has tolerated a politicization of the Fed, generally, that is very detrimental to the Fed, and in the long run, jeopardizes the independence of the Fed, because people ask themselves, ‘Well, maybe they shouldn’t have this independence if they’re going to use it to become a political body,’” said Toomey, who has criticized the central bank for weighing in on issues like climate change or racial justice.
“I don’t think he’s been by any means, you know, leading the effort, but I think he’s tolerated a politicization -- the Fed wandering into the social and cultural areas where the Fed doesn’t belong.”
A number of prominent Democrats as well as liberal advocacy groups have said they want the Fed to more aggressively counter the financial risks of climate change, pursue racial justice issues and the like, which Toomey called “anti-democratic” and “even somewhat authoritarian.”
“I wonder if the left would just kind of shrug if Republicans took complete control of the elected government and said, O.K., now the purpose of the Fed is to advance the pro-life agenda, make sure that we are staunchly pro-Second Amendment,” Toomey said. “Their heads would explode, and rightly so. That would make no sense. But they are doing exactly the equivalent with their preferred issues.”
Toomey also warned that the Fed’s bold actions to support the economy during the pandemic had fanned bubbles in some corners of the financial market.
“I have been very clear, I think we should have normalized a long time ago,” Toomey said. “And the idea that to this day, we’re still buying $120 billion of securities per month, and maintaining negative real interest rates is a very dangerous experiment that I’m really concerned is already going badly.”
The central bank slashed interest rates to nearly zero as the pandemic spread in March 2020 and aggressively bought bonds to calm panicked markets.
Some Praise
Fed officials began a two-day meeting on Tuesday. Economists expect they will signal a plan to start scaling back those purchases later this year in their policy statement to be issued Wednesday afternoon.
Toomey praised Powell, however, for regulation of the financial markets -- an area where he has faced intense criticism from Democratic senators Sherrod Brown, chairman of the Banking Committee, and Elizabeth Warren.
“I will say he is accessible and he’s responsive,” Toomey said.
Asked about possible endorsements, Toomey said he doesn’t plan to comment on potential Fed picks until Biden makes them.
Powell’s term as chair expires in February. White House advisers are considering recommending to Biden that he renominate Powell, who has broad bipartisan support, as chair and naming Brainard the vice chair for supervision.
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