Growth, jobs and inflation clash in Biden Fed choice

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WASHINGTON, Nov 17 (Businesshala) – The name of US President Joe Biden as the next chairman of the Federal Reserve, as soon as this week, will inherit an economy headed for the fastest annual growth in a generation, in which Wage growth will be the lowest- salaried employees, strong hiring and domestic bank accounts are filled with cash.

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He will also inherit a situation where houses, cars, food and clothing are becoming increasingly more expensive, and whether it’s current chairman Jerome Powell for a second four-year term or current Fed governor Lyle Brainard’s promotion, that inflation. Shock to deal with carries risks for both the president, the economy and the Fed.

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Rising prices have begun to dent the public mood here, pushing Biden’s approval numbers to the lowest point of his presidency, cited as a concern in polls that cross party lines and income brackets. And that is also shared among those for whom there are high prices. Offset from ongoing government payments.

For the Fed, this has presented a chronic problem in new circumstances – with tangled global supply chains, a hard-to-read and potentially under-served US labor market, and rising prices potentially causing them to raise interest rates and dent the economy. Forces slow growth before recovery. Jobs and workforce levels seen before the coronavirus crisis.

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It’s a choice that both Biden and the Fed hope may be avoided by a campaign to push job growth further and deeper into the economy, on the hope that inflation will behave roughly as it did before the pandemic. did. It is not.

“Six percent inflation is not the right level of inflation, we can all agree on that,” said Nella Richardson, chief economist at payroll processor ADP, recently citing consumer price hikes. And far beyond the Fed’s 2% target.

The Fed still expects the higher price movement to be “transient,” but “rich consumers have the luxury of time,” Richardson said. “Low-skilled consumers with low incomes do not. As much as I understand the fleeting argument, for some people waiting it out is not the best option.”

‘Lots of continuity’

Biden said on Tuesday that he would make a decision on the Fed in about four days. Powell’s current term ends in February and whether Biden chooses him or Brainard – both have been interviewed – the nominee will have to go through a confirmation hearing and vote in a closely divided Senate.

But a process that began as a somewhat obvious choice – sticking with Republican Powell for continuity and bipartisanship or tapping Democrat Brainard to reward supporters and push for a central bank-wide remake – has turned out to be difficult. Is.

The two are central bankers who have worked together over the years and share in remaking Fed policy to put a greater emphasis on jobs and allow some of the higher inflation to happen. Both will have to contend with the same dilemma in the coming months as to how far to allow those inflationary risks to run before action is taken.

“No matter how it turns out, there will be a lot of consistency in Fed policy. Both of these players have long track records,” St. Louis Federal Reserve Chairman James Bullard said Tuesday on Businesshala television.

But politically the landscape has changed for Biden from one where the Fed can keep its main focus on jobs where the fortunes of the president and his party may also need a dose of inflation-fighting.

Inflation a ‘huge concern’

In fact, a lot is going well. The economy added more than half a million jobs here in October and analysts expect strong job growth ahead, given the near-record numbers reported by firms and a willingness to offer higher wages.

Families are still sitting on large cash balances as a result of pandemic stimulus programs – and are willing to spend here based on retail sales that remained strong in October. Families with children are receiving monthly payments, which should lower the poverty rate and, apparently, lessen the sting of higher food and gas prices.

Yet Biden seems to have got little or no credit for it. In a recent Businesshala/Ipsos poll inflation was cited as a “huge concern for me” by a strong majority of Democrats and Republicans, an opinion that did not differ much between education levels, income or parents, Many of whom receive a monthly child tax credit.

Republicans have zeroed in on the issue as a powerful one for next year’s midterm elections, and some Democratic lawmakers and economists have even called on the Fed for tougher action.

The Biden administration, like many in the central bank, also believes that the current round of inflation is a temporary byproduct of spurring the global economy in the aftermath of the pandemic.

But a Biden adviser said fears about inflation and the economy in general were the main reason for Biden’s downfall in polls in recent months – and it’s up to Democrats to show they understand the issue and need to address it. are trying.

How this plays into the likes of the Fed is unclear.

Brainard, on the margin, may be the more “dovish” option, willing to show more patience in raising rates. Still, she’s also a PhD economist, schooled in the downside of letting inflation spiral and making it unlikely to happen on her watch.

Powell, a private equity lawyer but converted to a strategy to pursue broader employment gains, may have an easier path to confirmation, with support already announced among Senate Republicans and Democrats.

The President himself has started keeping inflation more central.

“A lot of people are upset about the economy, and we all know why,” Biden said last week. “They look at high prices. They go to the store…or go online and they can’t always get what they want and when they want it. We’re monitoring these issues and trying to find out.” Trying to figure out how to deal with them.”

Reporting by Howard Schneider; Additional reporting by Trevor Honeycutt; Editing by Andrea Ricci

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