with Brent D. Griffiths

Jerome Powell carefully avoided comment Thursday on an election that has yet to determine the next president or which party will control the Senate. But if Joe Biden clinches the presidency and Senate Republicans maintain their grip, the contest can add another winner: Jerome Powell.

The Federal Reserve chairman's odds of keeping his post improve markedly with power-sharing in Washington.

Biden is on the threshold of securing an Electoral College majority, having pulled ahead of President Trump in Georgia overnight and significantly narrowed the gap in Pennsylvania; Senate Republicans meanwhile have secured 48 seats and lead in two other races, leaving Democrats a best-case scenario of a 50-50 tie by winning a pair of seats in Georgia in January runoffs there. If they pull it off, a vice president Kamala Harris would become the tie-breaking vote. Our colleagues at Power Up have the full run-down on the state of play.

Powell, a registered Republican, has earned bipartisan goodwill in his nearly three years on the job, including for his response to the economic crisis. He has pulled out the central bank’s big guns, slashing interest rates and unleashing a flood of liquidity to calm nerves in C-suites and on Wall Street, while also advocating more spending from Congress to protect low and middle income workers bearing the brunt of the pandemic shutdowns.

“If there were a strong Democratic majority, I think Biden would be tempted to appoint a Democrat, perhaps a woman or minority,” says David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. He adds Powell’s “odds go up if Republicans keep the Senate.”

A Republican-controlled Senate would put "substantial boundaries around the range of candidates a President Biden could put forward,” says David Wilcox, a senior fellow at the Peterson Institute for International Finance who formerly led the Federal Reserve Board’s domestic economic division.

“That said,” Wilcox says, “I hesitate to buy into that logic too much because it suggests that on the merits, Jay Powell would be a compromise. On the execution of monetary policy through an incredibly difficult period, he has performed the job fabulously well and turned in a textbook performance that will be studied for many years."

The question isn’t necessarily top of mind for a Biden transition team already hustling to determine who should populate hundreds of Senate-confirmed jobs in a Democratic administration: Powell’s term isn’t up until February of 2022.

But insiders say the Biden team confronts a musical chairs dynamic that forces them at least to consider the matter. Specifically, if a President Biden wanted to replace Powell, Lael Brainard — the current Fed governor and former Treasury undersecretary — likely would top the list of candidates to fill the job. But Brainard is also a favorite for Treasury Secretary, a pick that Biden would need to make in the weeks ahead.

“To me, Jerome Powell is only still in play for a second term if Lael Brainard is named as Treasury secretary or takes another position within a Biden White House,” Cowen Washington Research Group analyst Jaret Seiberg tells me via email. “If she is still on the Federal Reserve next fall, Brainard becomes the prohibitive favorite.”

Powell isn’t universally loved. Liberal critics note he has presided over financial sector deregulation in the Trump era.

"I don't think Powell's approach on financial regulation is consistent with Biden's promises to put Scranton economics over Wall Street economics,” the Revolving Door Project’s Jeff Hauser emails. “Moreover, the Fed has failed to support state or local governments or step up on how climate change is set to generate financial instability.”

Looser industry regulation becomes a more urgent concern as the Fed signals it will keep borrowing rates low for the foreseeable future to support the economic recovery, says Marcus Stanley, policy director of Americans for Financial Reform. “Near-zero interest rates are great for borrowers, but they also allow banks and financial institutions to access oceans of free leverage,” he says. “That’s rocket fuel for financial speculation. When you’re relaxing regulatory controls on speculation at the same time you’re injecting this high-octane fuel into the speculative engine, you can run the system off the road.”

But without a Blue Wave, liberals can’t exert the influence they would like over Biden’s picks.

Some analysts argue in Powell’s case, Biden is likely fine with that. Capital Alpha’s Ian Katz notes Biden and Powell share a similar approach to Washington as institutionalists with a “mindset from an era when you could have civil conversations with members of the other party.”

Or as New York Magazine’s Josh Barro put it in a recent profile of the central bank chief: 

“Powell’s success as chair also provides a case study for Biden’s theory of policy-making. Throughout the campaign, Biden has told skeptical Democrats that his hands-on deal-making approach to Congress will help him forge bipartisan deals to move legislation even in the increasingly polarized environment of Washington… Biden and Powell have roughly the same approach to Congress — put in the face time, listen, make sure people know you understand their concerns, build political capital, get them to like you personally.”

One of Biden’s top economic advisors, Jared Bernstein, recently heaped praise on Powell, telling Politico’s Victoria Guida he is “hard pressed to find all the positive adjectives I can think of for Jay Powell’s job.”

And by sticking with Powell, Biden would nod to a recent tradition whereby a president of one party renominates a Fed chief first elevated by a president from the other party. President Obama gave Ben Bernanke a second term atop the Fed after he was first hired by President George W. Bush. And Alan Greenspan served five terms as Fed chief, nominated by Presidents Reagan, George H.W. Bush, Clinton and W. Bush.

"I think Jay Powell’s reappointment by a President Biden would be a very good thing for the fortification of the nonpartisan profile of the Federal Reserve,” Wilcox says. “And it would be a statement that technical proficiency and fidelity to the mission of the agency is something that’s recognized and rewarded."

Plus, liberals could see other opportunities to get friendly voices into the Fed’s leadership. 

If the Senate in the lame duck fails to confirm Trump’s last two picks for the Fed’s seven-member board, Judy Shelton and Chris Waller, and then Biden taps Brainard for Treasury, he would have three seats to fill.

And Biden may find another reason to rehire Powell if crisis is still roiling the economy when he begins to assess his options next year. As Wessel says, “No president likes to replace generals in the middle of a war."

Market movers

Gridlock is good, Wall Street signals.

An abrupt shift in expected election outcomes isn't weighing down the market: “The Dow Jones industrial average rose 542 points, or 2 percent, to close at 28,390. The broader S&P 500 also rose about 2 percent, while the technology-rich Nasdaq jumped 2.6 percent and has gained 6.5 percent in the past two sessions,” David J. Lynch and Taylor Telford report.

“All three markets are headed for their best weekly performances since April … Markets were quick to react to the unsettled election results, with the stocks of health insurers and drugmakers jumping on the assumption that Senate Majority Leader Mitch McConnell would block aggressive policy moves. Shares of insurer United Health Group rose 10 percent Wednesday before hitting a 52-week high Thursday, while shares of energy companies such as First Solar sank amid fading hopes for Democrats’ Green New Deal.”

Fed chair says recovery is slowing: Powell said the pace of the economic recovery has moderated over the past few months and cautioned that the recent rise in coronavirus cases in the United States and around the world is ‘particularly concerning,’” Rachel Siegel reports.

“Powell said Fed officials expect the pace of the recovery to ease compared with strong gains from May and June in economic benchmarks from the labor market to consumer spending, especially given how deeply the economy was gutted in the spring.”

  • Republican senator calls for Fed special loan programs to end: “If someone wants to make the case that we need the government to give money to people or businesses because they’re struggling, by all means you can make that case,” Sen. Pat Toomey (R-Penn.) told Politico's Victoria Guida. “But that’s not a Fed exercise.”

Gregory Daco of Oxford Economics highlights the vulnerability of the slowing recovery: 

Weekly jobless claims drop modestly.

The recovery continues to cool: “Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 751,000 for the week ended Oct. 31, the Labor Department said. Data for the prior week was revised to show 7,000 more applications received than previously reported,” Reuters's Lucia Mutikani reports.

“The weekly unemployment claims report, the most timely data on the economy’s health, followed on the heels of reports on Wednesday showing private payrolls increasing less than expected in October and activity in the services industry cooling.”

October jobs report likely to confirm the trend. “The U.S. job market likely expanded further in October, but a report Friday could show the extent to which the recovery has cooled, as new coronavirus infections rise,” the WSJ's Josh Mitchell writes. “Economists surveyed by The Wall Street Journal expect the Labor Department to say U.S. employers added 530,000 jobs in October and that the unemployment rate fell to 7.7% from September’s 7.9%. That would mark the sixth straight month of job creation since the pandemic plunged the country into recession this past spring.”

"The labor market recovery has been quick by historical standards and has regained a bit more than half the ground lost. Through September, the economy clawed back 11.4 million of the 22 million lost in March and April. The unemployment rate has fallen from a peak of 14.7% in April, though it remains well above the pre-pandemic level of 3.5%. 

“But job growth has slowed since June. After adding 1.8 million jobs in July, employers added 1.5 million in August and 661,000 in September. A recent rise in virus infections, persistent social-distancing restrictions and the fading effects of federal relief spending appear to be weighing on the labor recovery.”

Consumers are mostly putting spending on hold as we await election results: “Americans spent $2 billion online on Election Day — a 27 percent increase from a year earlier, but still about 11 percent less than in the preceding two days, according to Adobe Analytics, which analyzed more than 1 trillion visits to U.S. retail sites. The group said it expects online sales to dip by as much as $300 million on Wednesday while the country awaited election results,” Abha Bhattarai reports.

“While some Americans may have stocked up on nonperishables and toilet paper in recent days, because of supply chain concerns or fears of election-related unrest, analysts say they don’t anticipate panic buying to pick up in coming weeks. Overall holiday spending is expected to be tepid this year, with Deloitte predicting sales growth between 1 percent and 1.5 percent.” 

Coronavirus fallout

From the U.S.:
  • At least 9,596,000 cases have been reported; at least 234,000 have died
  • U.S. tops 116,000 cases, another record: “A second day of six-figure case counts pushed the total number of infections reported in the United States to nearly 9.6 million on Thursday, according to data tracked by The Washington Post. At least 234,000 fatalities have been reported to date,” Antonia Noori Farzan reports.
From the corporate front:
  • GM rebounds: “The automaker's efforts to crank up production of pickups and other lucrative models drove a $4 billion profit in the third quarter … Adjusted pretax profit was $5.28 billion in the third-quarter of 2020, or $2.83 earnings a share. The results blew past analysts’ expectations of $1.38 a share,” the WSJ's Mike Colias reports.
  • ESPN cuts jobs: “The network, which is owned by Disney, is reducing its workforce by about 10 percent  through a combination of layoffs and attrition of employees, including remote workers … The cuts come as ESPN and Disney deal with challenges posed by the pandemic, which has resulted in lost ad revenue from canceled or delayed sporting events,” the WSJ's Benjamin Mullin reports. Meanwhile, the New York Times is warning of slowing growth, Reuters reports.

Pocket change

DOJ seeks to block Visa's acquisition of Plaid.

The $5.3 billion deal is now facing antitrust concerns: “U.S. attorneys for the DOJ outlined potential for the deal to extend a Visa ‘monopoly’ on debit transactions. For antitrust reasons the $5.3 billion acquisition, which was announced in February, “must be stopped,” according to the complaint,” CNBC's Kate Rooney reports.

“The DOJ cited Visa CEO Al Kelly’s description of the deal as an ‘insurance policy’ to neutralize a ‘threat to our important US debit business.’ Plaid is a San Francisco-based financial technology firm that uses APIs to connect consumer bank accounts to popular finance apps such as Venmo and Robinhood.”

Apple must face shareholder suit over CEO Tim Cook's comments: “Apple Inc has been ordered to face a proposed class-action lawsuit by shareholders who accused Cook of concealing falling demand for iPhones in China, resulting in billions of dollars of investor losses,” Reuters's Jonathan Stempel reports.

“Apple told suppliers to curb production a few days after Cook spoke, and on Jan. 2, 2019, unexpectedly cut its quarterly revenue forecast by up to $9 billion, which Cook blamed in part on pressure on China’s economy from U.S.-China trade tensions. The lowered revenue forecast was the first by Apple since the iPhone’s launch in 2007. Shares of Apple fell 10 percent the next day, erasing $74 billion of market value.”

$26 billion opioid lawsuit settlement offer gains support: “The deal is $4 billion more than an offer made a year ago, that was rejected by many states and municipalities. A major difference in the latest offer is $2 billion earmarked for private lawyers who represent cities, counties, and some states," the New York Times's Jan Hoffman reports.

Most of the money from the settlement deal is intended to help pay for treatment and prevention programs in communities ravaged by addiction and overdoses.”

Bitcoin is surging, closing in on record: “Bitcoin soared more than 7 percent and was trading above $15,000 — its highest level in nearly three years — as mainstream interest in the cryptocurrency builds and the US dollar weakens,” CNN Business's Paul R. La Monica reports.

"The value of one bitcoin has more than doubled in 2020. The gains have been particularly dramatic in the past few weeks, with bitcoin rising 40 percent since early October. If bitcoin continues to surge, it may not be long before the cryptocurrency finally tops the all-time high of just under $20,000, reached in December 2017. 

Daybook

Today:

  • The Labor Department releases the monthly jobs report

The funnies

Bull session