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Should Biden Reappoint Jerome Powell? It Depends on His Theory of Change.

President Biden is facing a big decision, and deep divides among his allies. Should he reappoint Jerome Powell to lead the Federal Reserve when Mr. Powell’s term ends early next year, or select a replacement who is more fully aligned with the Democratic policy agenda?

Pro-Powell forces argue that he has proved exceptionally committed to generating a robust job market that will lead to better conditions for American workers. Those who argue against reappointment say that he has been too soft a regulator of banks and other financial institutions, and that he is insufficiently committed to using the Fed’s powers to combat climate change.

But there is a more fundamental question for President Biden: What is his theory of how change happens?

Credit…Ann Saphir/Reuters

One theory of change is that, when a party wins the presidency and the Senate (however narrowly), it should put in place appointees who are fully fledged adherents of its agenda. These appointees will then push that agenda with every possible tool at their disposal. If they make lots of enemies, or see their more aggressive actions struck down by courts — or generally emerge as polarizing forces — so be it.

If Mr. Biden were to take this approach, he might seek a firebrand for the top job at the Fed, betting that the nominee could both secure confirmation in a closely balanced Senate and steer the nation’s central bank toward a more activist stance on a range of liberal priorities.

A reappointment of Mr. Powell would follow the opposite theory of change. In this version, there is great value in appointees who have the biography and political skill to make urgent policy changes seem sensible and reasonable, not scary. This strategy, the logic goes, will make more aggressive policy action achievable. And it could also make it more durable in the face of court challenges and changes in the control of government.

Another leading candidate for the job, Lael Brainard, 59, would essentially split the difference between those approaches. She has been a Fed governor for the last seven years, collaborating closely with Mr. Powell and other top leaders of the central bank.

She is hardly a firebrand; her speeches are carefully crafted and her positions well within the economics mainstream. But she is a Democrat who donated to Hillary Clinton’s presidential campaign in 2016 and who dissented on numerous actions to loosen bank regulations championed by Trump appointees. She has also expressed public alarm about the economic implications of climate change.

It is a distinctly different background and persona from Mr. Powell, a 68-year-old Princeton graduate who worked as a Wall Street dealmaker and private equity executive. He served in the George H.W. Bush administration, and was appointed to lead the central bank by President Donald J. Trump.

He has also become, in recent years, a full-fledged convert to the religion of full employment. This is the view that the Fed should allow the economy to run hot enough that opportunity opens to people across American society, including historically marginalized groups.

This view is more commonly embraced on the political left. But Mr. Powell came to it over the second half of the 2010s, as the labor market improved to levels far beyond what the Fed’s own economic models had envisioned without spurring unwelcome inflation.

His stewardship of the Fed is, in that sense, the 21st-century American embodiment of the concept of “Tory men, Whig measures.”

The phrase, from a 19th-century novel by Benjamin Disraeli, who would go on to become British prime minister, refers to a government in which hardheaded conservatives (the Tories) nevertheless carry out ideas that originated in left-of-center (Whig) circles, aimed at improving life for the masses.

What would that mean if Mr. Powell were to be appointed to a second term as Fed chair starting in early 2022?

It would mean that the major rethinking of the Fed’s approach to the labor market would continue to be led by a registered Republican whom 84 senators voted to confirm in 2018. Ms. Brainard was confirmed with 61 votes in 2014, including 11 Republicans.

Part of the case for reappointing Mr. Powell is that his mere presence — his credibility on both sides of the aisle in Congress and on Wall Street — would be an asset to the administration’s broader economic project at a time of surging inflation and bubbly financial markets. The fact that he is not a Biden ally, or a Democrat at all, becomes a feature rather than a bug.

“Part of the Biden mantra has been to restore civility and downplay partisan tensions,” said Sarah Binder, a George Washington University professor who has written extensively on the Fed’s place in American politics. “It’s somewhat fortuitous for Biden that if he wants to reappoint Powell he can do it under the guise of restoring the independence of the Fed even though Powell thoroughly fits his views on monetary policy.”

During Mr. Powell’s chairmanship, the Fed has weakened several restrictions on big banks, loosening the capital and liquidity requirements placed on them, among other steps. It has also allowed several large bank mergers to occur.

Ms. Brainard’s dissents from regulatory actions were unusual for the consensus-driven Fed. When she was the lone vote against one action in 2018, no governor had dissented from one in seven years. She would go on to dissent 20 times over the next three years.

In regulatory policy, Fed leaders traditionally defer to elected leaders while aiming to maintain a wall of independence around monetary policymaking. And that has been enough to make presidents willing to reappoint Fed leaders from the other party even when they have disagreements over regulatory approach.

The Fed chair Ben Bernanke, for example, was a Bush appointee. He was supportive of regulatory changes put in by the Obama-appointed Fed governor Dan Tarullo, and President Obama went on to reappoint Mr. Bernanke. Notably, as a Fed governor, Mr. Powell did not dissent from any regulatory steps championed by Mr. Tarullo.

And while those cross-party reappointments have parallels to this moment — see also Ronald Reagan/Paul Volcker and Bill Clinton/Alan Greenspan — there may be an even closer historical parallel.

In the 1930s, Franklin Delano Roosevelt turned not to any of the bright New Deal economists who were advising him on policy, but to a Utah banker named Marriner S. Eccles.

Mr. Eccles embraced deficit spending and loose monetary policy to help propel the nation out of the Great Depression, but presented himself as merely a pragmatic businessman recommending a sensible course. He distanced himself from the more academic intellectuals tied to the administration.

“Eccles served a very important purpose for the Roosevelt administration because he was a millionaire who espoused policies that were friendly to what Roosevelt wanted to do,” said Eric Rauchway, a historian at the University of California, Davis, and author of “Why the New Deal Matters.”

In public appearances, Mr. Eccles emphasized that he arrived at his views not by reading John Maynard Keynes or other influential intellectuals of the era, but by working through things on his own. And while Mr. Eccles was closely aligned with the Roosevelt inner circle on macroeconomic management, he was more wary of other administration policies that involved expansive government control of the economy. And that, Mr. Rauchway said, was why he was placed at the Fed instead of the White House or Treasury.

Mr. Biden is weighing a decision that will shape the economic backdrop of the remainder of his term. The question is whether the political logic that led Mr. Roosevelt to Mr. Eccles — and that led several other presidents to reappoint central bankers from the opposite party — applies in a world of high polarization and exceptionally high stakes.

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Why Washington Worries About Stablecoins

That makes them the type of financial product “macroeconomic disasters usually come from,” said Morgan Ricks, a professor at Vanderbilt University Law School and former policy adviser at the Treasury Department. “The stakes are really, really high here.”

That said, some people — including George Selgin, director of the Center for Monetary and Financial Alternatives at the Cato Institute — argue that because stablecoins are used as a niche currency and not as an investment, they may be less prone to runs in which investors try to withdraw their funds all at once. Even if their backing comes into question, people will not want the potential taxes and paperwork that comes with changing stablecoins into actual dollars.

Given that the technology is so nascent, it is hard to know who is correct. But regulators are worried that they may find out the hard way.

Stablecoins are not all created equal. The largest stablecoin, Tether, says it is roughly half invested in a type of short-term corporate debt called commercial paper, based on its recent disclosures. The commercial paper market melted down in March 2020, forcing the Fed to step in to fix things. If those types of vulnerabilities strike again, it could make it difficult for Tether to quickly convert its holdings into cash to meet withdrawals.

Other stablecoins claim different backing, giving them different risks. But there are big questions about whether stablecoins actually hold the reserves that they claim.

The company Circle had said that its U.S.D. coin, or U.S.D.C., was backed 1:1 by cash-like holdings — but then it disclosed in July that 40 percent of its holdings were actually in U.S. Treasuries, certificates of deposit, commercial paper, corporate bonds and municipal debt. A Circle representative said that U.S.D.C. will, as of this month, hold all reserves in cash and short-term U.S. government treasuries.

The New York attorney general investigated Tether and Bitfinex, a cryptocurrency exchange, charging in part that Tether had at one point obscured what the stablecoins actually had in reserve. The companies’ settlement with the state included a fine and transparency improvements.

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Retailers Rethink Pandemic-Battered Manhattan

In the heart of Manhattan’s garment district, a once-busy Starbucks on a corner of Eighth Avenue and 39th Street sits empty. Just down the block, a Dos Toros Taqueria that opened just three years ago is now closed. And Wok to Walk, which once served steaming containers of noodles mixed with chicken and vegetables to a bustling lunch crowd, is also shuttered.

While the Delta variant of the coronavirus has again delayed plans by many companies to bring employees back to offices en masse, workers who have been trickling into Midtown are discovering that many of their favorite haunts for a quick cup of coffee and a muffin in the morning or sandwich or salad at lunchtime have disappeared. A number of those that are open are operating at reduced hours or with limited menus.

With the pandemic keeping millions of New York City office employees home for the past year, restaurants, coffee shops, apparel retailers and others struggled to stay afloat.

By the end of 2020, the number of chain stores in Manhattan — everything from drugstores to clothing retailers to restaurants — had fallen by more than 17 percent from 2019, according to the Center for an Urban Future, a nonprofit research and policy organization.

Across Manhattan, the number of available ground-floor stores, normally the domain of busy restaurants and clothing stores, has soared. A quarter of the ground-floor storefronts in Lower Manhattan are available for rent, while about a third are available in Herald Square, according to a report by the real estate firm Cushman & Wakefield.

Starbucks has permanently closed 44 outlets in Manhattan since March of last year. Pret a Manger has reopened only half of the 60 locations it had in New York City before the pandemic. Numerous delicatessens, independent restaurants and smaller local chains have gone dark.

“Midtown clearly has been the hardest hit of any of the areas of Manhattan,” said Jeffrey Roseman, a veteran retail real estate broker with Newmark. “If you think of other office-centric areas, whether all the way downtown or Flatiron or Hudson Yards, there is a lot of residential surrounding those areas that helped sustain those markets. Midtown, for the most part, is a one-trick pony.

“It’s mostly offices and hotels, which also took a hit from the downturn in tourism.”

The turmoil has reached farther downtown, though. Last week, the luxury furniture retailer ABC Carpet & Home — whose flagship store has been a fixture of the Union Square area — filed for bankruptcy protection, in part because of “a mass exodus of current and prospective customers leaving the city.”

But in a city where one person’s downturn is someone else’s opportunity, some restaurant chains are taking advantage of the record-low retail rents to set up shop or expand their presence.

In the second quarter, food and beverage companies signed 23 new leases in Manhattan, leading apparel retailers, which signed 10, according to the commercial real estate services firm CBRE.

Shake Shack and Popeyes Louisiana Kitchen were among those signing new rental agreements this year. So was the burger chain Sonic, which signed a lease for its first Manhattan outpost, replacing a Pax Wholesome Foods location in Midtown. The Philippines-based chicken joint Jollibee, which enjoys a committed following, plans to open a massive flagship restaurant in Times Square.

Still, with so much uncertainty about when employees may fully return to Midtown offices, some companies are proceeding carefully. The coffee shop Bluestone Lane had plans to expand aggressively into Manhattan before the pandemic and is still considering locations in Midtown. But it has now turned its focus to opening in more residential neighborhoods like Battery Park City, Hudson Yards and TriBeCa.

“We intentionally selected urban residential areas for our new cafes so we are not dependent on our locals returning to a physical office space, and are well positioned for the future of hybrid work,” Nick Stone, the founder and chief executive of Bluestone Lane, said in an emailed statement.

And some chain restaurants that already have reopened in Midtown are altering their strategies to address what they believe are the changing needs of customers in a post-Covid world.

On a recent weekday, a handful of customers were nibbling on salads and sandwiches at the Bryant Park location of Le Pain Quotidien. The long, communal tables that once dominated the front of the restaurant are gone for now, while refrigerated cases for a selection of grab-and-go drinks, salads and sandwiches will be expanded next year as part of a remodeling. A new app to preorder and pick up food became available in May.

While the new technologies work for some customers, others long for the past.

“We used QR codes for guests to look at the menu as we tried to limit the contact of surfaces, but the majority of our guests want to hold a real menu,” said Stephen Smittle, the senior vice president of operations for Le Pain Quotidien. “They very much want to feel normal. They want a server. They want to hold a cup of coffee, not a paper cup.”

Struggling before the pandemic, Le Pain Quotidien filed for bankruptcy in May 2020. It was acquired by Aurify Brands, which has since reopened many of the Le Pain Quotidien locations around the city, including several in Midtown.

“Our thinking is that Midtown New York will come back to a level that might not be 100 percent prepandemic, but based upon information we have gathered, I do believe that Midtown is going to come back to a prominent level,” Mr. Smittle said.

For Starbucks, one of the big lessons from the pandemic was that customers liked ordering their drinks online and then quickly picking them up at stores or drive-throughs. Starbucks had started to offer that even before the pandemic, opening a pickup location in Midtown’s Pennsylvania Plaza in late 2019.

Since early 2020, Starbucks has permanently closed 44 of its 235 locations in Manhattan. But it is adding mobile pickup areas in many stores and adding more pickup-only locations. The company says it expects to have net new store growth in Manhattan in the next few years.

Before the pandemic, Starbucks operated three stores around the Columbus Circle area. It closed them and this year opened one large restaurant. Now runners from Central Park pick up their preordered drinks from a mobile counter and head out again, while other customers stand in line to place their orders and can sit at nearby tables.

“We were going to build the concept out and evolve over time,” said John Culver, the president of North America and chief operating officer for Starbucks. “What we’ve done is taken the opportunity that the pandemic has presented and accelerated the transformation of our portfolio of stores. Consumer behaviors during the pandemic have accelerated at levels that no one expected.”

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The Fed will re-examine ethics rules after trades by two officials drew scrutiny.

The Federal Reserve is poised to overhaul the rules regarding what its officials are allowed to invest in and trade after disclosures last week showed that two of the central bank’s officials were active in markets in 2020, drawing an outcry.

Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, and Eric Rosengren, the president of the Boston Fed, bought and sold stocks and real estate-tied assets last year.

Those transactions complied with Fed guidelines, but they involved securities that could have been affected by Fed decisions and communications during a year in which it was actively supporting a broad swathe of financial markets amid the pandemic. Policy researchers and even some former Fed employees were upset by the disclosures.

In response to the scrutiny, both regional presidents announced that they would sell their holdings and move them to cash and broad-based funds. Still, the episode highlighted that the Fed’s rules governing its officials’ financial activity — although in line with what much of the government uses, and in some cases stricter — allow for considerable individual discretion. The central bank said on Thursday that it would re-examine those policies at the direction of Jerome H. Powell, the Fed chair.

“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair Powell late last week directed board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed representative said in a statement.

“This review will assist in identifying ways to further tighten those rules and standards,” the representative added. “The board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct.”

The statement came about an hour after Senator Elizabeth Warren, a Massachusetts Democrat, announced that she had sent letters to the Fed’s 12 regional banks urging them to adopt tougher restrictions.

“The controversy over asset trading by high-level Fed personnel highlights why it is necessary to ban ownership and trading of individual stocks by senior officials who are supposed to serve the public interest,” Ms. Warren wrote in the letters.

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