White House nominates Fed chair Jerome Powell for 2nd term, ending speculation

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President Joe Biden announced Monday that he is nominating Jerome Powell for a second four-year term as Federal Reserve chair, backing Powell’s leadership of the economy through a brutal pandemic downturn in which The Fed’s ultra-low rate policies helped boost confidence and revive the job market. ,

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Biden also said he would nominate Powell’s preferred choice amongst the lone Democrats and many progressives on the Fed’s board of governors, Lyle Brainard, as the vice chair, No. 2 slot. A separate post of vice president for supervision, a bank regulatory position, remains vacant along with two other slots on the Fed’s board. Those positions will be filled in early December, the president said.

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Biden’s decision, after extensive deliberation, strikes a note of continuity and bipartisanship, at a time when rising inflation is burdening households and increasing risks to improving economics.

Backing Powell, a Republican first promoted to his position by former President Donald Trump, Biden dismissed complaints from progressives that the Fed has weakened bank regulation and that oversight of banks is focusing on climate change. Keeping it slow.

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“If we are to continue to build on this year’s economic success, we need stability and independence at the Federal Reserve – and after their trial over the past 20 months I am confident that Chair Powell and Dr. The strong leadership our country needs,” Biden said in a statement.

Inflation, full employment amid concerns

In a second term that begins in February, Powell faces a difficult and high-risk balancing act: rising inflation is causing hardship to millions of households, tarnishing economic recovery and keeping prices stable. reducing the Fed’s mandate. But with the economy still more than four million jobs shy of its pre-pandemic levels, the Fed has yet to fulfill its other mandate of maximizing employment.

Next year, the Fed is widely expected to start raising rates, at least once if not more. If the Fed moves too slowly to raise rates, inflation could accelerate and force the central bank to take more drastic measures to contain it later, potentially causing a recession. can cause. Yet if rates are hiked too quickly, it can stifle 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 very probable.

If confirmed, Powell would remain one of the most powerful economic officials in the world. By either raising or lowering its benchmark interest rate, the Fed wants to either cool or encourage growth and hiring and keep prices stable. Its efforts to direct the largest US economy in the world usually have global consequences.

The Fed’s short-term rate, which has been pegged at near zero since hitting the economy in March 2020, impacts a wide range of consumer and business lending costs, including mortgages and credit cards. The Fed also oversees the largest banks in the country.

Shares of US banks rose after the announcement. The S&P 500 Bank Index was up 2.4 per cent, for its biggest daily percentage gain in five weeks.

confirmation required

The chairman of the Senate Banking Panel, Sherrod Brown, an Ohio Democrat, and the committee’s senior Republican, Pat Tomei, both immediately endorsed Powell on Monday.

Powell, a 68-year-old lawyer by training, was nominated to the Fed’s board of governors in 2011 by former President Barack Obama, having pursued a lucrative career in private equity and served in several federal government roles.

He has earned generally high marks for managing perhaps the most critical financial situation in the world, especially in response to the coronavirus-induced recession.

The subsequent rise in inflation has forced the Fed to dial back its economic stimulus as soon as possible.

At its latest meeting in early November, the central bank said it would begin reducing its monthly bond purchases and eliminate them by mid- 2022. The purpose of those purchases is to keep long-term borrowing costs low for borrowing and spending.

For months, Powell characterized inflation as “transient” and said it primarily reflected unusual supply-chain disruptions stemming from the pandemic and increased demand for goods such as autos, furniture, electronics and appliances.

Recently, the Fed chairman acknowledged that high prices have persisted longer than he expected and extended to categories such as rent and medical care that are not directly related to supply shortages.

At a news conference this month, Powell acknowledged that high inflation could last until the end of the summer of 2022.

look | Powell announced rate cuts as the pandemic began:

Brainard, 59, was an architect of the Fed’s new policy framework adopted in August 2020, under which he said it would no longer raise rates as the unemployment rate had fallen to low levels that could exacerbate inflation.

Instead, the Fed said it would wait for anecdotal evidence that prices were rising. This reflects a view among some Fed officials that low unemployment and even rising wages no longer necessarily accelerate inflation.

Yet that new policy approach, designed in an environment of persistently low inflation, has come under pressure this year as inflation has picked up.

Brainard’s most far-reaching role was helping Powell direct the Fed’s response to the brutal pandemic recession.

In the spring of 2020, as businesses shut down and 22 million Americans were laid off, the Powell Fed reduced its key short-term rate to zero. To restore confidence in the banking system, the Fed launched a suite of emergency loan programs.

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