Biden Bets Fed’s Powell Could Herald Full US Economic Recovery

WASHINGTON, Nov. 22 (Reuters) – US President Joe Biden on Monday nominated Federal Reserve Chairman Jerome Powell for a second four-year term, positioning the former investment banker to commit the most sweeping monetary policy overhaul since the 1970s. and lead the economy out of the pandemic crisis.

Lael Brainard, the Federal Reserve board member and the other top candidate for the job, will become vice chairman, the White House said.

Taken together, the nominations are a combination of two monetary policy veterans and associates who collaborated on a recent review of the Fed’s policy, putting a focus on jobs of the pre-eminent inflation-oriented target of some four years. came about decades ago. Their challenge will be to sustain job growth in the US while also ensuring that recent high inflation does not become entrenched.

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“We have moved from a closed economy to one that leads the world in economic growth,” Biden said in comments at the White House with the nominees.

Citing Powell’s “firm leadership” that calmed panicked markets, and his belief in monetary policy that supports maximum employment, Biden said, “I believe Jay is the right person to see us through it.”

The United States is still dealing with the fallout from the pandemic, including inflation, he said, but the country has made “huge progress”, including adding nearly 6 million jobs since he was sworn in and raising wages – positive signs that are proof of the Federal Reserve.

“I respect Jay’s independence,” Biden said, addressing critics of his own Democratic party who wanted him to bump Powell, a Republican, for a Democrat. “At this time of both enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve.”

Powell, 68, and Brainard, 59, will both have to be confirmed in their Fed leadership roles by the Senate, which is currently controlled by Biden’s Democratic party but is closely divided. For the time being, the president has left open several other positions at the Fed, including vice chairman for oversight, which he may fill next month and which can be used to tighten banking regulation, improve diversity and make other changes where his supporters have urged for the Fed.

But for the Fed’s core policy — controlling inflation and setting interest rates when the economy reopens after the pandemic — Biden chose continuity.

“They are veterans and adult civil servants and there is little difference between them,” said Adam Posen, president of the Peterson Institute for International Economics.

Together, Powell, a moderate Republican elevated by former President Donald Trump, and Brainard, who served in previous Democratic administrations, “gives potentially unbiased credibility to a more realistic assessment of inflation risks” facing the United States.

That reassessment could mean interest rates will rise sooner rather than later if inflation, which both promised to fight, prove more persistent than expected.

“We know high inflation is taking a toll on families,” Powell said in brief remarks at the White House event where Biden announced the nominations.

Brainard also pledged to support a growing economy “that includes everyone,” and a Fed that “serves all Americans in every community.”

Federal Reserve chairman Jerome Powell listens as US President Joe Biden nominates him for a second four-year term in the South Court Auditorium of the Eisenhower Executive Office Building in the White House in Washington, US, Nov. 22, 2021. REUTERS /Kevin Lamarque

US stocks hit record highs after the news. Government bond yields also rose and the dollar strengthened.

Powell’s re-election had been encouraged by a cross-section of investors and economists with both conservative and liberal leanings, and was welcomed by congressmen from both parties.

The Fed’s aggressive actions at the start of the coronavirus pandemic in early 2020 have been hailed as averting a potential depression. Later, some praised his focus on jobs in the new policy framework launched a little over a year ago, and others argued it would be too risky to impeach the Fed chairman during a sensitive transition from the emergency measures imposed during the health crisis. taken.

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OPPORTUNITY TO CEMENT A LEGACY

Powell’s second term in office is set to begin in early February, and the coming months will be crucial in determining whether his legacy will be as the Fed chairman who has made employment the centerpiece of Fed policy, or as the one who has let inflation go. rising and re-establishing itself as a chronic problem.

Powell, who joined the Fed as governor in 2012, did not expect to become chairman when Trump was elected. With a pre-Fed career that spanned eight years as a partner at The Carlyle Group, one of the world’s largest private equity firms, and no formal economics training, he had instead seen the vice chairman for the supervisory position eventually taken over by Randal. Quarles was fulfilled.

He was confirmed as Fed chairman by an 84 to 13 vote, with Kamala Harris, now Biden’s vice president, among those who opposed him.

He soon came into contact with Trump, who threw unprecedented public campaigns against Powell via Twitter and in frequent media appearances. At one point, Trump labeled Powell an “enemy” of the United States for raising interest rates and examined whether he could fire him.

Powell not only survived, but arguably grew in the job.

Initially aggressive as governor, when he took the helm of U.S. monetary policy, he initially considered himself a college student, paying particular attention to arguments about whether the Fed’s focus on inflation was harming workers. The years since the financial crisis of 2007 to 2009 had convinced many that this was the case.

In November 2018, Powell launched a policy review that culminated in August 2020 with the adoption of an approach that would allow economic expansions to last longer and “hotter”, with temporarily higher inflation rates. Ideally, this would lead to job gains that play a broad social role and reduce the differences in unemployment between different demographic groups.

It was an approach that matched what then appeared to be the changing nature of the US economy, with low inflation and low interest rates embedded, and also adapted to the demands of a pandemic crisis that threatened to become a permanent hole in the US job market.

Just over a year after that new approach, however, inflation is at levels not seen in decades as resurgent demand for goods and services outstrips supply of materials and labor in an economy still suffering the rust of pandemics. shrugs off shutdowns.

“The new leadership team faces some very difficult challenges in the coming period,” said Krishna Guha, vice president of Evercore ISI.

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Reporting by Howard Schneider and Jeff Mason; Editing by Dan Burns, Heather Timmons and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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