Joe Biden nominates Jay Powell for the second term as Fed chairman

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Joe Biden has nominated Jay Powell to serve a second term as chairman of the Federal Reserve and choose continuity in a sensitive moment for the US economy as it struggles with persistently high inflation and an uneven labor market recovery.

Lael Brainard, who is considered Powell’s toughest competitor for the top job, was taken on as vice president, a position currently held by Richard Clarida.

Biden said Powell and Brainard had helped “guide us through the worst downturn in modern American history and put us on the road to recovery.”

He added: “I am convinced that President Powell and Dr Brainard’s focus on keeping inflation low, prices stable and delivering full employment will make our economy stronger than ever before.

“Together, they also share my deep conviction that urgent action is needed to address the economic risks posed by climate change and to stay one step ahead of new risks in our financial system.”

Biden has not appointed anyone to the handful of vacancies on the Fed Board, including the Vice President of Supervision, who is responsible for banking regulation. “The president intends to make these appointments beginning in early December and is determined to improve the diversity of the board’s composition,” the White House said.

The decision ends months of speculation about the Biden administration’s appetite to reshape the Fed at a time when the central bank is actively discussing how to fine-tune monetary policy in the face of supply-related shocks and growing inflationary pressures.

Earlier this month, the Fed began wind up its $ 120 billion monthly asset purchase program, with the intention of ending the stimulus completely next summer.

But recently inflation data, which showed that US consumer price growth jumped at the fastest pace in about three decades last month, has raised the prospect that the Fed will need to reject its patient stance on monetary policy by accelerating The “narrowing” of the bond purchase program before rapidly raising interest rates several times next year.

Powell, 68, was elevated to the Fed chair by Donald Trump in 2017 after serving as governor since 2012 and once serving as finance minister under George HW Bush. He was seen as the least controversial choice for Biden, especially as Powell’s broad bipartisan support is likely to facilitate the passage of his confirmation process through the Senate.

Powell’s supporters also argued that in a time of such pronounced economic uncertainty, a change of leadership could generate unnecessary market volatility.

After spearheading the central bank’s powerful response to the pandemic, Powell won praise for preventing more extreme market panic and steering the US economy through one of the worst contractions in history.

By sticking to Powell, a Republican, Biden ignored critique of progressives of the incumbent’s experience in regulation, which resulted in what they claimed was a dilution of the rules after the financial crisis for the largest financial institutions.

Elizabeth Warren, the Democratic left-wing senator from Massachusetts, went so far as to call Powell a “dangerous man” in September.

Biden and his team made the decision after talking to both progressive and moderate Democrats on Capitol Hill, including a meeting with Warren in the White House, according to a person familiar with the matter. The person said that Biden spoke about his decision to both Powell and Brainard on Friday.

Brainard opposed easing capital and liquidity requirements for US banks during Powell’s term, as well as modifications to Volcker’s own trading guidelines.

In the wake of the announcement, a closely monitored market measure of interest rate expectations, futures in euro dollars, indicated that interest rate hikes of at least three quarter points are now fully priced in December 2022.

Biden’s election follows the rarely broken tradition of reappointing an existing Fed chairman to the post during a president’s first term – a signal of continuity in politics and central bank independence.

Barack Obama reappointed Ben Bernanke as Fed chairman in 2009, while Bill Clinton did the same with Alan Greenspan in 1996. But Donald Trump broke the mold four years ago when he elected Powell instead of giving Janet Yellen a second term.

Additional reporting by Kate Duguid

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