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Biden nominates Powell for second term as Fed chair

President Joe Biden has decided to award Fed Chairman Jerome Powell a second four-year term, the White House announced Monday.

Powell, a moderate Republican with a career in investment banking, was originally nominated as president by Donald Trump in 2017.

Biden narrowed his search to Powell and Fed Governor Lael Brainard.

Biden has decided to nominate Brainard as vice chairman of the Fed.

“I have full confidence following their testing of the past 20 months that Chairman Powell and Dr. Brainard will provide the strong leadership our country needs,” Biden said in a statement.

Powell worked hard to cement a relationship on Capitol Hill that lapsed under predecessors Ben Bernanke and Janet Yellen. He is expected to be easily confirmed by the Senate with sizable Republican support.

“It tells you that Biden really cares about his poll numbers. He doesn’t want to fight. He wants a truly bipartisan candidate to pass,” said Steve Blitz, chief economist at TS Lombard.

Biden will soon be able to fill three more vacancies on the central bank’s seven-member board of governors, stamping him with the Fed.

Markets are increasingly worried about inflation as the economy bounces back from the coronavirus pandemic, and talk has often been made about the need for more aggressive monetary policy by the Fed.

Consumer prices hit a peak of 6% in October, the biggest gain since 1990 and well above the Fed’s 2% target.

However, the central bank has only just begun to slow down the pace of asset purchases at a rate of $15 billion per month. At this rate, the central bank will continue to buy bonds, which stimulate the economy, until next June.

Meanwhile, financial markets have priced in two Fed rate hikes in 2022.

Investors are wondering if the Fed will decide to buy assets at a faster pace or even start raising short-term interest rates.

Fed officials are divided on the way forward. Some want the central bank to go hawkish to combat high inflation while others want the central bank to be patient in raising interest rates until unemployment resumes post-pandemic recovery.

Read: Top Fed officials signal rate hike in 2022 under discussion

For much of the year, Powell dismissed a temporary increase in inflation from supply shocks caused by business shutdowns during the pandemic. In recent weeks, he has turned more concerned, vowing to raise short-term interest rates to slow inflation if it shows no signs of abating.

This summer, Powell’s departure was seen as a certainty, but as time passed without notice, analysts were rethinking.

The Democratic left is beginning to urge Biden to choose another candidate who will take a hardline stance on banking regulation and focus more on climate change.

Democratic Senator Elizabeth Warren of Massachusetts, a fierce critic of Wall Street, accused Powell of downplaying financial protections put in place in the wake of the 2008 panic. The Fed president is a “dangerous man”.

The Senate is expected to confirm Powell, 68, before his first term ends in February. He is expected to face tough questions about climate change and banking regulation from progressives during his reshuffle hearing.

Powell’s first term sees Trump vitriol followed by a pandemic

Powell took over as Fed Chairman in February 2018 after serving on the Fed’s board since 2012 when he was nominated by former President Obama.

His tenure was marked by two distinct periods – the first was harsh criticism from Trump although Powell has won widespread sympathy for keeping silent while being brutally criticized by Trump. .

After Trump’s tax cut passed, the Fed continued to raise short-term interest rates, leading to strong opposition from an angry president who pointed out that Europe and Japan were keeping their benchmark rates unchanged. Theirs is close to zero.

Trump called Powell an “enemy” and “nobody” and reportedly called his nomination the worst mistake of his presidency. He even tried to get rid of him.

The Fed reversed course in 2019, cutting rates after financial markets plunged.

Biden’s election raises the prospect of a quieter time for Powell but the central bank soon sees the risk of a recession due to the rapid spread of the coronavirus in early 2020.

Powell and his colleagues reacted quickly, cutting short-term rates to near zero in two swift moves in March. To support the faltering bond market, the Fed has also bought trillions of dollars in bonds. As a result, the recession was the deepest in the post-World War II period, but the recession was short.

As a result of its emergency actions, the Fed’s balance sheet doubled in size to more than $8 trillion, and concerns about the Fed’s need to rescue markets were deemed “too big to handle.” failure”.

Yield on 10-year Treasury note
TMUBMUSD10Y,
1.593%

moved higher after the announcement reached 1.585%.

Some Republicans and Wall Street economists argue that Powell made a mistake by not leaving his easy money policy stance sooner. They fear the Fed will have to “brake the brakes” and send the economy into a recession to cool the rise in US inflation.

Powell and other senior Fed officials blamed the price increases on widespread supply shortages tied to the reopening of the economy and trade disruptions caused by the pandemic.

However, many observers like former US Treasury Secretary Larry Summers blamed fiscal policy for leading to large stimulus payments to Americans, boosting consumer demand for goods and services. .

Under Powell’s leadership, the Fed adopted a new framework to place greater weight on reducing unemployment. Past Fed presidents tended to worry that low unemployment would lead to higher inflation.

The spike in inflation this year has cast doubt on this new policy stance.

In addition, in recent months, Powell has been embroiled in a financial scandal that has led to the resignation of two regional Fed chairmen.

However, Fed Powell has put more emphasis on inequality.

“The recession didn’t hit all Americans equally, and those least able to shoulder it were hit the hardest,” Powell said. “Despite the progress, unemployment continues to decline disproportionately for African-Americans and Hispanics.”

https://www.marketwatch.com/story/biden-nominates-powell-to-second-term-as-fed-chair-11637590473?rss=1&siteid=rss Biden nominates Powell for second term as Fed chair

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