Jerome Powell, who led the Federal Reserve and the nation’s economy through the dizzying and sudden Covid-19 recession by implementing unique monetary stimulus, has been nominated for a second term as chairman of the US Federal Reserve.
President Joe Biden announced Monday morning after weeks of speculation that pressure from progressives could get Fed Governor Lael Brainard to take his place.
Brainard will instead be deputy chairman of the board; she had been widely expected to have her own deputy head of the supervisory position, which oversees the country̵[ads1]7;s banking system. As deputy, she would succeed Richard Clarida, whose term expires on January 31, 2022.
Read more: Who is Lael Brainard?
“As I have said before, we can not just go back to where we were before the pandemic, we need to build our economy back better, and I’m sure Chairman Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before, “Biden said in a statement.
The nominations then go to the Senate for confirmation.
When he made the decision, Biden Powell praised the Fed for its “decisive” action in the early days of the pandemic.
The Fed rolled out a unique range of lending programs while cutting interest rates back to near zero and introducing a monthly bond purchase program that would increase the central bank’s holdings of government bonds and collateralized securities by more than $ 4 trillion.
“Powell’s chairman has provided stable leadership during a uniquely challenging period, including the biggest economic downturn in modern history and attacks on the independence of the Federal Reserve,” the White House said in a statement. “During that time, Lael Brainard – one of the country’s leading macroeconomists – has played a key leadership role in the Federal Reserve, working with Powell to help drive the country’s robust economic recovery.”
The announcement coincided with a modest boost to stock market futures while government bond yields were higher across the board.
Markets are closely following the pace the Fed will follow as it liquidates its massive political support.
Officials have already indicated that they will start reducing bond purchases, with reductions of around $ 15 billion per month, which will mean that the program will probably end in late spring or early summer 2022.
Interest rate increases are another matter.
Most Fed officials have so far said they will not consider raising interest rates at least until bond buying declines. However, the markets have been looking for a faster timeline for prices, with the initial increase now priced in for June 2022.
Controversy in recent days
Although Powell carried the day, it was not without controversy.
The Fed has been under fire recently following an ethics scandal in which several officials engaged in trading stocks at a time when the institution was implementing guidelines aimed at increasing markets. Powell revealed that he owned municipal bonds, which the Fed also bought, and he also bought and sold funds linked to the broad stock market indices.
At the same time, the Fed has been hit by inflation, which has gone faster than it had expected – in fact at the sharpest pace in 30 years. The official Fed policy since September 2020 has been to let inflation run somewhat warmer than the standard target of 2% if it allows for full and inclusive employment, but prices have risen well above this level.
Powell has maintained that inflation will cool when factors related to the pandemic return to normal. But recent polls have raised questions about the so-called average inflation target, which signaled a historic turnaround in the central bank’s monetary policy.
Inflation has also come with a rapid economic recovery and a decline in unemployment from a pandemic peak of 14.8% to the current 4.6%.
The White House statement said the recovery was “a testament to the success of the president’s economic agenda, and is a testament to the decisive action taken by Chairman Powell and the Federal Reserve to curb the impact of the pandemic and get America’s economy back on track.”
Brainard emerged as a key force in the battle over who should carry the Fed over the next four years. She has pointed to several issues that are important to the Biden administration, in particular the need for the Fed to support the banking system against disruptive climate change.
A former secretary of state under the Obama administration, Brainard has also been a strong advocate for a digital dollar.
The White House statement underlined the importance of progressives for the Fed in the years to come.
Biden said that Powell and Brainard “also share my deep conviction that urgent action is needed to address the economic risks posed by climate change, and to be at the forefront of new risks in our financial system.”
“Basically, if we want to continue to build on economic success this year, we need stability and independence in the Federal Reserve – and I have full confidence that Chairman Powell and Dr. Brainard after their trial in the last 20 months. will provide the strong leadership our country needs, “he added.
Biden still has more work to do in the Fed: There is one vacancy on the board, while the Clarida position must be filled in January. He must also appoint a deputy supervisor, a position that Randal Quarles held until his term expired in October. The White House indicated Monday that these moves will be announced in early December.
Congress’s first reaction to Monday’s news was positive.
Sen. Sherrod Brown, who heads the Senate Central Banking Committee to hear the nominations first, said: “I look forward to working with Powell to stand up against Wall Street and stand up for workers so that they can share in the wealth they create.”
Struck back from Covid
President Donald Trump appointed Powell to the position in 2018, somewhat of a surprise. Trump chose to bypass then-chair Janet Yellen, an unusual feature in that Fed leaders are rarely removed after just one term. Former President Barack Obama appointed Powell to a 14-year term as governor in 2014.
Although Trump nominated Powell, he later fired withered criticism of the Fed chief when the central bank raised interest rates seven times in 2017 and 2018. The former president went so far as to call the Fed politicians for trying to normalize policy. economy recovered.
As for Brainard, it is now widely expected that she will be appointed Vice President of Supervision, a key Fed post to oversee the country’s banking system.
The Fed is empowered by Congress to fulfill two mandates: Maximize US employment and keep inflation stable. Its leaders, known as governors, are nominated by the president and vote on how to adjust interest rates, regulate the country’s largest banks and monitor the health of the economy.
To combat the rise in unemployment and recession that began in the spring of 2020, the central bank cut interest rates and began buying around $ 120 billion in government bonds and mortgage-backed securities each month. It also introduced a number of lending programs aimed at keeping fixed income markets afloat after enduring significant stress at the outset of the pandemic.
Economists credit the rapid and significant response to stabilizing financial markets and later suppressing long-term interest rates. Lower interest rates make it easier for companies to take out loans to build new factories, or for individuals to buy homes or cars.
“Under Powell, the Fed has placed more emphasis on making the economy work with maximum employment,” Mike Feroli, chief economist at JPMorgan, said in an email.
“This is a goal that progressive economists have long advocated and a goal that is probably in line with Biden’s agenda.”
Finance Minister Janet Yellen, one of Biden’s top financial advisers and an adviser to his Fed nominations, told CNBC earlier this month that she was pleased with the Fed chief’s work. Yellen was the first woman to serve as the Fed’s chair of the board and is the country’s first female finance secretary.
“I talked to him about candidates and advised him to choose someone who is experienced and credible,” Yellen said. “I think Chairman Powell has certainly done a good job.”
Powell is also popular on Capitol Hill, where lawmakers on both sides of the aisle have praised his leadership and kindness since taking over from Yellen in February 2018.
The news is likely to disappoint progressives, including Senator Elizabeth Warren, D-Mass., Who said in September that the Fed’s role in easing banking regulations in recent years makes Powell a “dangerous man,” and that she will oppose his name.
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