Biden is betting that Fed’s Powell can usher in a full economic recovery in the United States

WASHINGTON, Nov. 22 (Reuters) – US President Joe Biden on Monday nominated Governor Jerome Powell for a new four-year term, positioning the former investment banker to continue the most consistent monetary policy revision since the 1970s and complete guidance for the economy out of the pandemic crisis.

Lael Brainard, the Federal Reserve board member who was the other top candidate for the job, will be deputy chair, the White House said.

Combined, the nominations put two monetary policy veterans and partners on a recent overhaul of Fed policy, which shifted the emphasis to jobs from the prominent focus on inflation established about four decades ago. Their challenge will be to keep US job growth going, while ensuring that the latest strong inflation is not anchored.

“We have gone from an economy that was shut down to an economy that leads the world in economic growth,” Biden said in comments in the White House with the nominees.

Referring to Powell’s “steady leadership” that calmed market panic, and his belief in monetary policy that supports maximum employment, Biden said, “I think Jay is the right person to see us through.”

The United States is still dealing with the effects of the pandemic, including inflation, he said, but the country has made “enormous progress” including adding nearly 6 million jobs since being sworn in and raising wages – positive signs that are a testament to the Federal Reserve.

“I respect Jay’s independence,” Biden said, addressing critics from his own Democratic Party who wanted him to beat Powell, a Republican, for a Democrat. “In this moment of both enormous potential and enormous uncertainty for our economy, we need stability and independence in the Federal Reserve.”

Powell, 68, and Brainard, 59, must both be confirmed in their Fed leadership roles by the Senate, currently controlled by Biden’s Democratic Party but closely divided. The president has so far opened several other Fed positions, including deputy supervisor, which he can fill as soon as next month, and which can be used to tighten bank regulation, improve diversity and make other changes his supporters have called for. for the Fed.

But for the Fed’s core monetary policy – controlling inflation and setting interest rates as the economy opens up from the pandemic – Biden chose continuity.

“They are veterans and mature civil servants, and there has been very little difference between them,” said Adam Posen, president of the Peterson Institute for International Economics, when it comes to monetary policy.

Together, Powell, a moderate Republican exalted by former President Donald Trump, and Brainard, who served in former Democratic administrations, “give potentially nonpartisan credibility to a more realistic assessment of inflation risk” the United States faces.

That reassessment may mean that interest rate increases come sooner than later if inflation, which both promised to fight, proves to be more persistent than expected.

“We know that high inflation takes a toll on families,” Powell said in brief remarks at the White House event where Biden announced the nominations.

Brainard also promised to support a growing economy “that includes everyone,” and a Fed that “serves all Americans in every society.”

US stocks reached record highs after the news. Government bond yields also rose and the dollar strengthened.

Powell’s reappointment had been encouraged by a cross-section of investors and economists with both conservative and liberal leanings, and was welcomed by members of Congress from both parties.

The Fed’s aggressive actions at the start of the coronavirus pandemic in early 2020 were hailed as averting a potential depression. Later, some praised his focus on jobs in the new political framework launched just over a year ago, and others argued that it would be too risky to remove the Fed chair during a sensitive transition from the emergency measures taken during the health crisis.

CHANCE TO CENTER AN INHERITANCE

Powell’s second term will begin in early February, and the coming months will be crucial in determining whether his legacy will be as the Fed leader who lifted employment to the center of Fed policy, or as the one who allowed inflation to rise and recover as a. chronic problem.

Powell, who joined the Fed as governor in 2012, did not expect to be named chairman of the board when Trump was elected. With a pre-Fed career that had included eight years as a partner in The Carlyle Group, one of the world’s largest private equity firms, and no formal financial education, he had instead looked at the deputy head of the supervisory position that was eventually occupied by Randal Quarles. .

He was confirmed as the Fed leader with a vote of 84-13, with Kamala Harris, now Biden’s vice president, among those who opposed him.

He soon clashed with Trump, who slammed unique publicity against Powell over Twitter and in frequent media appearances. At one point, Trump branded Powell an “enemy” of the United States to raise interest rates and investigated whether he could fire him.

Powell not only survived, but no doubt grew at work.

Originally a hawk as governor, when he took over the helm of American monetary policy, he initially considered himself a student, with particular emphasis on arguments about whether the Fed’s focus on inflation had disadvantaged workers. The years since the financial crisis in 2007 to 2009 had convinced many that this was the case.

In November 2018, Powell launched a policy review that culminated in August 2020 with the adoption of an approach that allows economic expansions to run longer and “warmer” with temporarily higher inflation rates. Ideally, it will lead to job gains that reach far into society and reduce the gaps in unemployment between different demographic groups.

It was an approach that was in line with what at the time seemed to be the changing nature of the US economy, with built-in low inflation and low interest rates, and also adapted to the demands of a pandemic crisis that threatened a permanent hole in the US labor market.

Just over a year after the new approach, however, inflation is at levels that have not been seen for decades, as the new demand for goods and services exceeds the supply of materials and labor in an economy that continues to shake off the rust of pandemic shutdowns.

“The new leadership team is facing some very tough talks in the period ahead,” wrote Evercore ISI deputy Krishna Guha.

Reporting by Howard Schneider and Jeff Mason; Edited by Dan Burns, Heather Timmons and Andrea Ricci

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