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Biden has Republican Powell as ally in bid to lift labor's clout

By Rich Miller, Bloomberg News on

Published in News & Features

WASHINGTON — President-elect Joe Biden wants to reverse the decadeslong trend that has seen workers get an ever smaller piece of the economic pie.

And no matter which political party ends up controlling the Senate, Democrat Biden's best bet for achieving that could rest with a Republican: Federal Reserve Chairman Jerome Powell.

From a higher minimum wage and increased power for unions to bigger taxes on capital gains and the wealthy, Biden has outlined an ambitious agenda to lift labor's share of the income the economy generates.

"It's time to reward work, not just wealth, in America," Biden told reporters after a Nov. 16 meeting with union and corporate leaders to discuss the coronavirus pandemic's effect on the economy.

The trouble for the president elect is that much of his program hinges on the Democrats taking control of the Senate, something that won't be known until early January after runoff elections for Georgia's two seats. If his party falls short — as many political analysts expect — he'll have to largely fall back on executive and regulatory actions to try to tilt the playing field in the direction of workers.

Fortunately though for Biden, he'll have a Fed chair in Powell who's committed to returning the labor market to its pre-pandemic glory — when unemployment was at a 50-year low of 3.5% and a wide swath of workers were enjoying wage gains. And Powell overhauled the central bank's strategic framework to help bring that about.

 

That's an approach backed by Biden's reported pick for Treasury Secretary, Janet Yellen, and one that is likely to endure even if Powell isn't renominated for a second term when his current one ends in February 2022.

While bigger wage gains would be good for workers and help boost household spending, they might be a mixed blessing for companies and the stock market. Corporate revenue will climb as gross domestic product expands, but a smaller share of that will be going to the bottom line as profits.

"It's possible that Biden's plans could hurt the stock market even if they helped growth," said Harvard University professor Jason Furman. "I'm not saying they would but the stock market cares not about overall GDP but the fraction of GDP that they get as profits."

The Fed's new monetary policy framework underscores its determination to achieve maximum employment that is broad-based and inclusive. No longer will it preemptively raise interest rates to head off higher inflation as unemployment falls. Instead, the Fed will allow joblessness to drop as far as possible and only seek to slow growth after inflation has moderately run above its 2% target for some time.

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