Biden bets that Fed Powell will usher in a full recovery of the U.S. economy Reuters

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© Reuters. File photo: Federal Reserve Chairman Jerome Powell attends the House of Representatives Financial Services Committee hearing on Capitol Hill in Washington, U.S., September 30, 2021. Al Drago/Pool via REUTERS/File Photo

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Author: Jeff Mason and Howard Schneider

Washington (Reuters)-US President Joe Biden nominated Federal Reserve Chairman Jerome Powell on Monday for a second four-year term, enabling the former investment banker to continue the most important monetary policy reform since the 1970s and complete it Guide the economy out of the predicament and pandemic crisis.

The White House said that the other best candidate for the position, Fed Board Member Lyle Brainard will serve as vice chairman.

Combining the nominations, two monetary policy veterans and collaborators recently reformed the Fed’s policy, shifting the focus from the prominent focus on inflation established about 40 years ago to employment. Their challenge will be to maintain employment growth in the United States while ensuring that the recent strong inflation does not become entrenched.

“We have transformed from a stalled economy to an economy that leads the world in terms of economic growth,” Biden said in a speech with the nominee at the White House.

Biden cited Powell’s “sound leadership” to calm panic markets and his belief in a monetary policy that supports maximum employment, saying “I believe Jay is the right person to get us through the storm.”

He said that the United States is still dealing with the effects of pandemics, including inflation, but the country has made “great progress”, including adding nearly 6 million jobs and increasing wages since he was sworn in. The signs prove that the Federal Reserve of the United States.

“I respect Jay’s independence,” Biden said, speaking directly to critics of his Democratic Party who want him to compete with Republican Powell for the Democratic Party. “At a time when our economy is facing great potential and great uncertainty, we need the stability and independence of the Federal Reserve.”

Both Powell, 68, and Brainard, 59, need to be confirmed by the Senate for their leadership in the Fed. The Senate is currently controlled by Biden’s Democrats, but they are very divided. The President currently retains several other Federal Reserve positions, including the position of Vice Chairman of Supervision. He may fill these positions next month. These positions can be used to strengthen bank supervision, improve diversity, and do what his supporters urge. Other changes. For the Fed.

But for the Fed’s core monetary policy—managing inflation and setting interest rates when the economy reopens from a pandemic—Biden chose continuity.

“They are veterans and mature civil servants, and there is almost no difference between them,” said Adam Posen, director of the Peterson Institute for International Economics.

Powell, a moderate Republican promoted by former President Donald Trump, and Brainard, who served in the former Democratic administration, jointly “provided potentially non-partisan credibility for a more realistic assessment of the inflation risks facing the United States.”

This reassessment may mean that if the inflation that both parties have promised to fight proves to be more durable than expected, then interest rate hikes may come sooner or later.

“We know that high inflation will bring losses to families,” Powell said in a brief speech at the White House event where Biden announced his nomination.

Brainard also pledged to support a growing economy “including everyone” and the Federal Reserve “serving all Americans in every community.”

After the news, US stocks hit a record high. Treasury bond yields also rose, and the U.S. dollar strengthened.

Powell’s re-election was encouraged by cross-border investors and economists with conservative and liberal tendencies, and was welcomed by congressmen from both parties.

The Fed’s aggressive actions at the beginning of the coronavirus pandemic in early 2020 have been hailed as avoiding a potential Great Depression. Later, some people praised his focus on employment in the new policy framework introduced more than a year ago, while others felt that removing the Fed chairman during the sensitive transition from emergency measures taken during the health crisis was too risky.

Opportunity to consolidate legacy

Powell’s second term will begin in early February, and the next few months will be crucial for determining whether his legacy will be the chairman of the Federal Reserve who promotes employment to the center of Fed policy, or the chairman of the Federal Reserve who allows inflation to soar and re-establishes himself. . Chronic problems.

Powell, who joined the Fed as a governor in 2012, did not anticipate being named chair when Trump was elected. Carlyle Group (NASDAQ:), one of the world’s largest private equity companies, has not received formal economics training, instead he has set his sights on the supervision that was finally filled by Randal Quarles The position of vice chairman.

He was confirmed as the chairman of the Federal Reserve by 84 votes to 13, and the current Vice President of Biden Kamala Harris is also among those who oppose him.

He quickly clashed with Trump, who made an unprecedented public attack on Powell through Twitter (NYSE:) and frequent appearances in the media. Trump once called Powell the “enemy” of US interest rate hikes and explored whether he could be fired.

Powell not only survived, but it can be said that he has grown up in this job.

As a governor, he was initially hawkish. After serving as the helm of US monetary policy, he initially considered himself a student, paying particular attention to the debate about whether the Fed’s concern about inflation puts workers at a disadvantage. In the years since the 2007-2009 financial crisis, many people believe that this is indeed the case.

In November 2018, Powell initiated a policy review, and finally adopted a method of allowing economic expansion to last longer and “hotter” in August 2020, while the inflation rate temporarily increased. Ideally, this will lead to the increase in employment that enters the society widely and narrow the unemployment gap between different population groups.

This method was in line with what seemed to be the ever-changing nature of the US economy at the time, with inherently low inflation and low interest rates, and also adapted to the needs of the pandemic crisis that threatened permanent vacancies in the US job market.

However, in just over a year after adopting this new method, as the recovery demand for goods and services has exceeded the supply of materials and labor, inflation is still running, but the economy is still free from the effects of pandemic shutdowns.

Krishna Guha, Vice Chairman of Evercore ISI, wrote: “The new leadership team is facing some very difficult calls for some time to come.”

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