Biden picks Jerome Powell to lead the Fed for a second term as the U.S. battles Covid and inflation

Though Powell carried the day, it was not without controversy.

The Fed has been under fire lately following an ethics scandal in which multiple officials engaged in trading stocks at a time when the institution was implementing policies aimed at boosting markets. Powell disclosed that he owned municipal bonds, which the Fed also was buying, and he also bought and sold funds tied to the broad stock market indexes.

At the same time, the Fed has been hit with inflation running faster than it had anticipated – in fact, at the sharpest pace in 30 years. Official Fed policy since September 2020 has been to let inflation run somewhat hotter than the standard 2% target if it allows for full and inclusive employment, but prices have been rising well above that level.

Powell has held to the line that inflation will cool off once factors associated with the pandemic return to normal. But the recent readings have raised questions about the so-called average inflation targeting that signaled a historic turn in central bank monetary policy.

The inflation also has come with a rapid economic recovery and a decline in the unemployment rate from a pandemic peak of 14.8% to its current 4.6%.

Presented later Monday afternoon in a joint appearance with Biden, both Powell and Brainard stressed the importance of controlling inflation.

“We know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials like food, housing and transportation,” Powell said. “So we use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

Brainard added that she is “committed to putting working Americans at the center of my work at the Federal Reserve. This means getting inflation down at a time when people are focused on their jobs and how far their paychecks will go.”

Brainard emerged as a key force in the race over who would carry the Fed through the next four years. She has taken point on several issues important to the Biden administration, particularly the need for the Fed to brace the banking system against disruptive climate change events.

A former undersecretary of the Treasury during the Obama administration, Brainard also has been a strong proponent of a digital dollar as a means to open the financial system to the unbanked.

The White House statement stressed the importance of progressive for the Fed in the years to come.

Biden said that Powell and Brainard “also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system.”

“Fundamentally, if we want to continue to build on the economic success of this year we need stability and independence at the Federal Reserve – and I have full confidence after their trial by fire over the last 20 months that Chair Powell and Dr. Brainard will provide the strong leadership our country needs,” he added.

Biden still has more work to do on the Fed: There is one vacant position on the board of governors, while the Clarida vacancy will need to be filled come January. He also will need to name a vice chair for supervision, a post the departing Randal Quarles had held until his term expired in October. The White House indicated Monday that those moves will be announced in early December.

The initial congressional reaction to Monday’s news was positive.

Sen. Sherrod Brown (D-Ohio), who chairs the pivotal Senate Banking Committee that will first hear the nominations, said, “I look forward to working with Powell to stand up to Wall Street and stand up for workers, so that they share in the prosperity they create.”

Pennsylvania Republican Patrick Toomey said he will support Powell though he noted he has had disagreements with central bank policies.

The news is likely a disappointment to progressives including Sen. Elizabeth Warren, D-Mass., who said in September that the Fed’s role in relaxing banking regulations in recent years makes Powell a “dangerous man” and that she would oppose his renomination. 

Biden recently met with Warren to discuss the appointments, according to a source familiar with the matter.

Two other Democratic senators, Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon, also said they would oppose Powell.

Article source: https://www.cnbc.com/2021/11/22/biden-picks-jerome-powell-to-lead-the-fed-for-a-second-term-as-the-us-battles-covid-and-inflation.html