President Biden said Monday he is nominating Jerome Powell for a second four-year term as Federal Reserve chairman, signifying his stewardship of the economy through a brutal pandemic recession in which the Fed’s ultra-low rate policy helped bolster confidence. and relaunch the job market .
Biden also said he would nominate Lael Brainard as vice chairman, the only Democrat on the Fed’s board and the preferred alternative to Powell among many progressives.
His decision conveys continuity and ambiguity at a time when rising inflation is burdening households and amplifying risks to the economy’s recovery. In backing Powell, a Republican elevated to his post by President Trump, Biden brushed aside complaints from progressives that the Fed has watered down banking regulation and been slow to take climate change into account in banking oversight.
“When our country lost jobs and panic erupted in our financial markets last year, Jay’s steady and determined leadership helped stabilize the markets and put our economy on track for a robust recovery,” said Biden, Powell’s nickname. using.
In a second term starting in February, Powell would face a difficult and risky balancing act: Inflation has reached a three-decade high, putting millions of families in hardship, obscuring the recovery and the Fed’s mandate to keep prices stable. , is undermined. But with the economy still well over 4 million jobs behind pre-pandemic levels, the Fed has yet to fulfill its other mandate to maximize employment.
The Fed is widely expected to begin raising benchmark rates next year, with financial markets pushing a price hike of at least two hikes. If it goes too slowly to raise interest rates, inflation could accelerate further and force the central bank to take more draconian steps later to contain it, potentially triggering a recession. But if the Fed raises rates too quickly, it could hamper hiring and recovery.
If confirmed, Powell would remain one of the world’s most powerful economic officials. By raising or lowering short-term interest rates, the Fed is trying to cool or boost growth and hiring, and keep prices stable. Its efforts to direct the US economy, the largest in the world, typically have global repercussions.
The Fed’s benchmark rate, which is close to zero since the pandemic hit the economy in March 2020, affects a wide range of borrowing costs for consumers and businesses, including mortgages and credit cards. The Fed also oversees the country’s largest banks.
For months, Powell was the favorite to be reappointed, but a vigorous campaign by environmental and public advocacy groups in support of Brainard has clouded the picture in recent weeks. Critics, including Senator Elizabeth Warren (D-Mass.), claimed Powell had relaxed banking rules introduced after the 2008-2009 financial crisis.
And two other senators spoke out against Powell last week for saying he was insufficiently committed to using the Fed’s regulatory tools to combat global warming.
Brainard cast 20 votes against changes to the financial rules in the past four years. In March 2020, she opposed a regulatory change that she said would reduce the amount of reserves large banks were required to hold to protect themselves against losses. She has also spoken more forcefully than Powell on ways the Fed can tackle global warming.
Biden tried to allay those concerns. He said Powell had committed to making climate change “a top priority” and agreed to ensure “our financial regulation stays ahead of emerging risks”.
“Jay, along with the other members of the Fed board that I will be nominating, must ensure that we never again expose our economy and American families to that kind of risk,” he said at the White House, referring to the report. 2008 financial crisis.
Biden still has the option to fill three more positions on the Fed’s board of directors, including the vice chairman for oversight, a top bank regulation position. Those positions will be filled in early December, Biden said.
Biden acknowledged that some Democrats were encouraging him to elect a new Fed chairman, for a “fresh start.” But he said he wanted to go in a different direction.
“We need stability and independence at the Federal Reserve,” he said. “I believe that broad and bipartisan Fed leadership is important, especially now, in such a politically divided country.”
Biden praised Powell for his efforts to maximize employment but did not push for inflation, which has emerged as the biggest economic threat to his administration. Biden said the US economy is in the midst of a “historic recovery” that gives the Fed the opportunity to “attack inflation from a position of strength, not weakness.”
Powell said, “we know that high inflation takes a toll on families, especially those who are less able to meet the increased costs of essentials, such as food, housing and transportation.” He pledged to use the Fed’s tools — primarily raising interest rates — “to prevent higher inflation from becoming entrenched.”
Powell’s reappointment is expected to be approved by the Senate Banking Committee and then by the full Senate.
Some liberal Democrats, such as Senator Sherrod Brown of Ohio, chairman of the Banking Committee, have supported Powell, as have moderate Democrats, including Senator Jon Tester of Montana. He was also supported by Senator Pat Toomey (R-Pa.), the senior Republican on the panel, and is likely to receive broad support from Republicans.
Wall Street cheered the renomination, stock prices rose and market fears eased immediately after the announcement. The S&P 500 is on track to close a new record.
The 68-year-old attorney was nominated to the Fed’s board of directors in 2011 by President Obama after a lucrative career in private equity and various positions with the federal government.
Unlike his three immediate predecessors, Powell does not have a PhD in economics. Still, he has achieved overall high marks for managing arguably the most important financial position in the world, especially in his response to the coronavirus-induced recession.
Still, the spike in inflation has forced the Powell Fed to roll back its economic stimulus ahead of schedule. At its last meeting in early November, the central bank said it would begin cutting its monthly $120 billion bond purchases this month and likely end them by mid-2022. Those purchases were intended to keep borrowing costs low in the longer term to encourage borrowing and spending.
For months, Powell characterized inflation as “transient,” but more recently admitted that higher prices are lasting longer than expected. At a news conference this month, Powell acknowledged that high inflation could persist beyond the summer of 2022.
Brainard’s elevation to the Fed’s second position follows the key role she played in the Fed’s emergency response to the pandemic recession. She is part of a ‘troika’ of top policymakers, including Powell and Richard Clarida, who she will replace as vice president in February.
Brainard was an architect of the Fed’s new policy framework, passed in August 2020, in which it said it would no longer raise interest rates simply because the unemployment rate had fallen to low levels that could boost inflation. Instead, the Fed said it would wait for actual evidence that prices are rising.
Brainard also played a key role in the Fed’s redefinition of its maximum employment target as “broad and inclusive,” taking into account the unemployment rate for black Americans and other groups, not just Americans as a whole, in policy decisions.
She also talked about ways the Fed could take climate change more directly into account in banking oversight. Many environmental groups say loans to oil and gas companies, as well as to commercial real estate developers, could default and inflict large losses on banks if environmental damage worsens or if renewable energy takes on a larger share of electricity generation.
“Climate change,” she said, “is expected to have profound effects on the economy and the financial system, and it is already wreaking havoc.”
Associated Press writer Josh Boak contributed to this report.