Biden will tap Jerome Powell for new term as Fed chairman

The White House said Mr Biden would also nominate Fed Governor Lyle Brainard as a vice chairman of the central bank’s board of governors.

Mr Biden’s decision ended months of speculation in financial markets and Washington policy circles on one of the world’s most important economic policy positions. Mr. Powell is expected to win bipartisan Senate confirmation; Of the 84 lawmakers who voted for him four years ago, 68 are still in office, split equally between the two party caucuses.

The Fed chairman met with the president on November 4. The President also interviewed Ms. Brainard on the same day.

Mr Biden could put his stamp on the central bank with three additional appointments. There is already a vacancy on the Fed’s seven-member board of governors, and Fed Vice Chairman Richard Clarida’s term as governor will end in January. The four-year term as vice president of bank supervision, previously held by current Fed Governor Randall Quarles, ended in October and he plans to retire at the end of the year. Mr Biden will announce those appointments in early December, the White House said on Monday.

“We need stability and independence at the Federal Reserve if we are to continue to build on this year’s economic success – and after their trial over the past 20 months I am very confident that Chair Powell and Dr. Brainard will provide our country. needs strong leadership,” Mr Biden said in a statement on Monday.

Mr. Powell now faces a particularly delicate path as the recovery from the COVID-19 pandemic and the government’s response has stoked demand and disrupted global supply chains, pushing inflation to its highest in more than a decade. level has been sent.

The threat to the Fed is twofold: If supply-chain bottlenecks correct themselves over time, officials don’t want to overreact by raising interest rates and cooling the economy. But they don’t want to react less as wages rise, fueling a more traditional inflationary cycle.

Mr Powell, 68, is seen as a steady hand within the administration and by supporters in the markets, whose broad, personal reach has led to the bipartisanship for the central bank a decade after being badly hit by the 2008 financial crisis. Helped to restore support. Mr. Powell, a Republican and former private-equity executive, was nominated to the Fed’s seven-member board by then-President Barack Obama 10 years ago and was promoted to chairman by then-President Donald Trump four years ago.

Mr Powell was endorsed for the job by several members of Mr Biden’s economic team, including Treasury Secretary Janet Yellen, who served as Fed chair from 2014 to 2018.

The political support that Mr. Powell provided proved valuable throughout his tenure as chairman – first, when he faced frequent attacks by Mr. Trump for raising interest rates in 2018 and 2019, and later, When he led a rapid, aggressive response on a global scale. The financial panic triggered by the coronavirus pandemic in March 2020.

Under Mr. Powell, the Fed worked closely with Congress and the US Treasury to deliver one of the biggest and boldest economic policy responses since World War II. The Fed slashed interest rates to zero and then bought trillions of dollars of government debt and offered to buy trillions more loans and other assets to backstop the debt markets.

Mr. Powell unveiled a significant change in the way interest-rate policy is handled by the central bank in 2020, when he announced that the Fed would set aside its practice of raising rates to pre-empt inflationary pressures. and would instead leave rates to grow rapidly to reduce it. recovery after recession

The change reflected the Fed’s reassessment of the economy in 2019, when inflation did not rise as policymakers expected the unemployment rate to fall to its lowest level in 50 years. Mr Powell navigated a policy U-turn from raising rates to cutting them in the face of continued criticism from Mr Trump, who privately and publicly threatened to sack the Fed leader for not providing easy monetary policy. Was.

Earlier this year, Fed officials were keen to avoid a re-run after the 2007-09 recession, in which weak growth forced the central bank to implement new measures to stimulate an economy that in which short-term rates were already near zero. But reopening the economy and boosting the $1.9 trillion federal spending signed by Mr Biden in March, on top of trillions of relief spending in 2020, led to a much-anticipated jump in consumer prices, which rose 4.4% in September. A year ago, according to the Fed’s preferred gauge.

The Fed recently began reducing its $120 billion-a-month bond-buying stimulus program by $15 billion a month, a pace that could end purchases around June. After that, the focus will be on when and how quickly the central bank raises interest rates from near zero.

Mr. Powell is to manage a group of 12 Reserve Bank chairmen and a maximum of six other governors who participate in rate-setting meetings. Many are more concerned that high inflation will persist, requiring the central bank to raise rates sooner or more aggressively than it was a few months ago. Others are alarmed by the exaggeration and have argued that pre-pandemic dynamics in which inflation, interest rates and global growth were historically low will eventually reestablish themselves.

Mr. Biden’s political fate in the coming years may be tied to Mr. Powell’s reaction. If the Fed waits too long, Americans could face years of high inflation or the central bank could be forced to raise rates aggressively, confusing financial markets and plunging the economy into recession. If it runs too fast or too quickly, it slows down premature hiring.

Mr. Powell has argued that price pressure reflects constraints from disrupted supply chains, temporary shortages and a rebound in travel. But he has warned in recent weeks that price pressures could also reflect stronger demand and an overstretched supply chain could lead to more persistent inflation than officials initially expected.

“We should be in a position to address that risk,” he said at a November 3 press conference. “We think we can be patient. If asked for a response, we won’t hesitate.”

In recent months, progressive economists as well as current and former Democratic lawmakers have spoken out in favor of giving Mr. Powell a second term. He argued that his skills have transcended the polarization that has driven much of Washington into a stalemate, making him uniquely positioned to provide political support and intellectual support for progressive policies that Even the most qualified Democrats can be ousted.

“In this political climate, any other nominee will run the risk of being perceived as the political choice,” said Roberto Perli, an analyst at Cornerstone Macro, a research firm in Washington. Mr. Powell had pushed monetary policy in a direction “that is very much in line with the priorities of this administration, but he did so for good economic reasons, not political reasons,” said Mr. Perly, a former Fed economist.

Mr. Powell’s leadership of the Fed has faced fresh scrutiny in recent weeks due to financial disclosures by senior central bank officials that exposed broad trading last year, when the Fed deployed unusual countermeasures against the pandemic.

The reputational crisis prompted two Fed Reserve Bank chairmen to retire early. Mr. Powell in October announced sweeping reforms to policies on how its leaders manage individual investments to reduce the presence of conflicts of interest.

A vocal minority of progressive groups pressured Biden to replace Mr Powell, commit to aggressive bank regulation and use the central bank’s supervisory powers to address climate change. Some of them supported Ms. Brainard, an economist nominated to the board by Mr. Obama in 2014. He supported Mr. Powell’s monetary policy decisions, disagreeing with steps to ease some banking rules.

Massachusetts Sen. Elizabeth Warren told Mr Powell at a September 28 hearing that she would oppose his nomination because of the Fed’s record of loosening rules on banks in recent years. “It makes you a dangerous man to lead the Fed,” she said. Later, she cited suspicious trading activity by Fed insiders as a sign of failed leadership by Mr. Powell.

Other Democrats expressed concern that the preferences of progressives could lead the Fed to a broader partisan war that the institution has largely avoided. They worried that such moves could undermine its effectiveness on a new monetary policy strategy that has put new emphasis on tighter labor markets.

Montana Sen. John Tester, a moderate Democrat who strongly supported Mr. Powell’s appointment in September, said, “It makes me very, very uncomfortable if we’re going to hire someone … move the Fed. and to lose his freedom.”

Taking Ms. Brainard to the vice chair represents a sort of agreement between the two camps. The vice chairman of the board, along with the New York Fed chairman, traditionally serves as the Fed chairman’s top lieutenant in designing monetary policy. Ms. Brainard is expected to take over as vice-president next February.

Ms. Brainard has been a strong supporter of the Fed’s policy changes during Mr. Powell’s tenure and has generally advocated delaying interest rate hikes to avoid the risk of inflation below the central bank’s 2% target.

Mr. Powell has scheduled hundreds of meetings with lawmakers during his four years in office, and is well-liked by politicians on both sides of the aisle. Representative Emanuel Cleaver (D., Mo.) recalled inviting Mr. Powell to his district several years ago and introducing him to a cross section of rural Missouri and Kansas City residents.

“There was no exception—everyone thought, ‘Hey, this guy’s fine. He’s a straight shooter.’ There is nothing biased about his presentation,” Mr. Cleaver said.

Mr Powell drew on that political capital in 2020 to urge lawmakers to spend more money after the pandemic hit. “It is time to use the great financial power of the United States of America to support the economy and try to achieve this with as little damage as possible,” he said in April 2020.

By that time, the Fed had already slashed rates to zero and was buying up massive amounts of debt to avoid a financial meltdown. It also unveiled lending backstops to businesses, cities and states that went far beyond anything the Fed did during the 2008 financial crisis.

The unemployment rate, which hit a half-century low of 3.5% in February 2020, rose to 14.8% in April 2020, the highest level since the 1930s, as medically motivated efforts to contain the economy Was put in a coma. The spread of covid-19. Unemployment continued to fall, falling to 4.6% in October.

The Fed’s response earned praise from lawmakers – a stark contrast with the unpopular bank bailout in 2008. “We all remember well the spring of 2020, when the world economy nearly thawed, and that wasn’t enough in part because of the actions that Sen. John Kennedy (R., La.) said at the July hearing, You and your allies took it, but you kept it midway.”