Jerome Powell is likely to sail through confirmation to become the next Federal Reserve leader, even though the process of filling Fed positions has grown increasingly politicized since the days when Ben Bernanke was confirmed as chairman by a voice vote with little opposition.
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Mr. Powell, now a Fed governor, heads into his confirmation hearing before the Senate Banking Committee on Tuesday having garnered support from Republicans and Democrats, giving him a strong chance of approval without much drama.
It isn't the first time he has been selected for a Fed post as a candidate who could offer the path of least resistance through an increasingly rancorous process. A look at recent Fed confirmation battles reveals the back story of how Mr. Powell ended up in a position to win confirmation.
The recent wrangling started a decade ago, when President George W. Bush nominated two bankers, Larry Klane, then an executive at Capital One Financial Corp., and Elizabeth Duke, a Virginia banker, to the Fed board of governors in the spring of 2007.
The Senate Banking Committee, then led by Connecticut Democrat Chris Dodd, slow-walked the nominations ahead of the 2008 presidential election, which Democrats appeared increasingly likely to win as the economy deteriorated. With Mr. Bush leaving office after his second term, the new president could fill any open Fed board slots.
While the committee allowed Ms. Duke's nomination to advance, it never voted on Mr. Klane's. It also declined to approve another term for Fed governor Randall Kroszner, a Bush nominee who joined the Fed board in 2006 to fill an unexpired term that ended in early 2009.
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The Fed's responses to the financial crisis, including rescues of several big financial firms, attracted political fire from both parties. Mr. Bernanke cruised through his 2006 confirmation, but when he was appointed for a second term in 2010, he was opposed by 30 senators -- 18 Republicans, 11 Democrats and an independent -- in the Democratic-controlled Senate.
The vacancies left over from Mr. Bush's presidency, combined with other term expirations, meant that by 2010, President Barack Obama had three Fed board openings to fill at once. He nominated San Francisco Fed President Janet Yellen for Fed vice chairwoman, plus Sarah Bloom Raskin -- a Maryland state banking regulator -- and Massachusetts Institute of Technology economics professor Peter Diamond for governors.
Both women won Senate confirmation. As a regional Fed bank president and former Fed governor, Ms. Yellen had solid central bank experience. Ms. Bloom Raskin's background as a banking regulator was newly relevant in the aftermath of the financial crisis. Earlier in her career, she had served as counsel to the Senate Banking Committee under Paul Sarbanes, a popular elder statesman from a less contentious time who came out of retirement to speak on her behalf at her confirmation hearing.
Mr. Diamond ended up the odd man out. Sen. Richard Shelby (R., Ala.), then the ranking minority member of the banking committee, led the opposition, still smarting over the earlier rejections of Messrs. Klane and Kroszner.
While awaiting confirmation, Mr. Diamond won the 2010 Nobel Prize in economics. But with Republican opposition firm, he ultimately withdrew.
The White House hit upon the idea, in the summer of 2011, of nominating a Republican and a Democrat to the Fed board, hoping the package could win approval.
The White House initially wanted to nominate Jeremy Stein, a Harvard economist and Democrat, to one seat and Richard Clarida, a Republican economist and adviser to Pacific Investment Management Co., or Pimco, to the second.
Mr. Clarida pulled out of the process. About the same time, Treasury Secretary Timothy Geithner learned that Mr. Powell, a Republican who had served in President George H.W. Bush's Treasury Department, had been challenging members of his own party not to play games with the U.S. debt ceiling. Aside from his stint at Treasury, Mr. Powell spent most of his career in finance. He had only recently joined the Bipartisan Policy Center, which put him in a position to argue about the cap on federal borrowing, which some GOP lawmakers resisted raising.
Thus Mr. Powell was nominated to the Fed alongside Mr. Stein in late 2011. Even as a package, they almost didn't advance. In May 2012, with a presidential election drawing nearer and Democrats holding a slight edge in the Senate, they appeared headed for the same fate as Messrs. Diamond, Kroszner and Klane.
It took an improbable event to break the impasse. The investment bank J.P. Morgan Chase & Co. lost nearly $2 billion when a trader, nicknamed the London Whale, ended up on the losing side of a big trade. The losses sparked an uproar about oversight of the largest banks, and Senate Majority Leader Harry Reid, a Democrat from Nevada, leveraged the moment to advance Messrs. Powell and Stein.
In May of 2012, Mr. Powell was approved by a vote of 74 to 21, for a term that ended in January of 2014. Twenty-five Republicans voted for Mr. Powell, but 20 voted against him, along with an independent. Mr. Stein was also confirmed, on a 70-24 vote.
Less than two years later, Mr. Powell's term had already expired. He proved to be a diligent Fed governor who didn't rock the boat, but rancor over Fed confirmations hadn't abated. Mr. Obama nominated him for a second term, as part of a package deal with two other Fed board candidates. Mr. Powell was confirmed with 67 yes votes by a Senate with a Democratic majority.
Thus, when President Donald Trump began considering this year whom to nominate as Fed chairman, Mr. Powell had a key advantage in the congressional calculus. Despite the general Fed rancor, he had won support from nearly all Democrats and about half of Republicans in two recent nomination votes. All of the other candidates Mr. Trump had identified would have had significant camps of opponents.
The last Fed leader confirmation came in 2014, when Ms. Yellen was approved in a 56-26 vote, with 11 Republicans joining 45 Democrats to support her and no Democratic opposition. Poor weather caused some to miss the vote.
This time around, some Republican senators have signaled their intention to support Mr. Powell for Fed chairman, despite voting against him last time for governor.
Some Republican senators have signaled their intention to support Mr. Powell for Fed chairman, despite voting against him last time for governor.
Mr. Powell is likely to smoothly win Senate confirmation again, this time to become Fed chairman.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
November 26, 2017 07:14 ET (12:14 GMT)