WASHINGTON — President Joe Biden announced on Monday that he has nominated Jerome Powell to head the Federal Reserve for a second four-year term, and that Powell’s economy through a brutal pandemic recession where the Fed’s ultra-low interest rates helped boost and rekindle confidence. announced its approval. job market.
Biden also said he would nominate Lael Brainard, the lone Democrat on the Fed’s Board of Directors and the preferred alternative to Powell among many progressives, as vice president as slot #2.
A separate vice president position in charge of supervision, a bank regulator post, remains vacant, along with two other places on the Fed’s board of directors. These positions will be filled in early December, the president said.
“We need stability and independence in the Federal Reserve if we’re going to continue to build on this year’s economic success – and I’m confident President Powell and Dr. Brainard will provide it after their trial in the last 20 months. We need the strong leadership our country needs,” Biden said. ” said.
Biden’s decision, taken after a comprehensive assessment, gives a rating of continuity and bilaterality at a time when rising inflation weighs on households and raises risks for the economy’s recovery. Biden, who backed Powell, a Republican first appointed by President Donald Trump, brushed aside complaints from progressives that the Fed was weakening bank regulations and was slow to take climate change into account in its supervision of banks.
If confirmed by the Senate, Powell will remain one of the world’s most powerful economic officials. By raising or lowering the benchmark interest rate, the Fed aims to cool or encourage growth and hiring and keep prices stable. Efforts to steer the U.S. economy, the world’s largest, typically have global ramifications.
The Fed’s short-term interest rate, which has stabilized near zero since the pandemic hit the economy in March 2020, impacts a wide range of consumer and business borrowing costs, including mortgages and credit cards. The Fed also oversees the country’s largest banks.
In the second term, which will begin in February, Powell would face a difficult and high-risk balancing act: Rising inflation is causing difficulties for millions of families, shadowing the economic recovery, and reducing the Fed’s mandate to keep prices stable. But with the economy still over 4 million jobs from pre-pandemic levels, the Fed has yet to fulfill its other mandate of maximizing employment.
If the Fed moves too slowly to raise interest rates, inflation could accelerate further, forcing the Fed to take tougher steps to rein in it later, potentially causing a recession. But if the Fed raises rates too quickly, it could hinder hiring and economic recovery.
Powell’s re-nomination must be approved in a vote by the Senate Banking Committee and then confirmed by the full Senate, which is considered likely.
Powell, a 68-year-old attorney, was nominated to the Fed’s Board of Directors in 2011 by President Barack Obama, after building a lucrative career in private equity and serving in a number of federal government positions.
Unlike his three predecessors, Powell does not have a PhD. in the economy. Still, it received high marks overall for managing perhaps the most important financial situation in the world, particularly its response to the coronavirus-induced recession. The recession quickly wiped out 22 million jobs in spring 2020, causing panic in financial markets.
The subsequent rise in inflation forced the Powell Fed to turn back its economic stimulus sooner than he had anticipated. At its last meeting in early November, the central bank said it would begin reducing monthly bond purchases and likely finish by mid-2022. The purpose of these purchases was to keep long-term borrowing costs low to encourage borrowing and spending.
A swift pullback in bond purchases would allow the Fed to raise rates much sooner than policymakers expected last spring, when rate hikes are expected to begin in late 2023.
Powell also avoided most of the blame on Capitol Hill, at least, for inflation to spike to a three-year high, even though one of the Fed’s duties is to control interest rates and maintain stable prices. Republicans in Congress instead cited President Joe Biden’s economic policies as the main culprit, and some have already endorsed Powell’s reappointment.
But in recent weeks, the Fed has come under some criticism from economists for being too slow to recognize the persistence of high inflation and the need for immediate action to raise interest rates.
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