Wed. Dec 1st, 2021

Joe Biden has nominated Jay Powell to serve a second term as chairman of the Federal Reserve, choosing continuity at a delicate time for the U.S. economy, as it faces persistently high inflation and a sluggish recovery in the labor market.

Lael Brainard, who is considered Powell’s main contender for the top job, has been selected for the role of vice president, a position currently held by Richard Clarida.

Biden praised Powell’s response to the coronavirus pandemic, his commitment to the Fed’s goals of full employment and stable prices, and his defense of the central bank’s “integrity and credibility” during Donald Trump’s administration.

“We are in a position to attack inflation from a position of strength, not weakness,” Biden said.

The decision puts an end to months of speculation about the Biden administration’s appetite to reform the Fed. This comes as the central bank debates how to refine monetary policy in the face of supply-related disruptions and increasing inflationary pressures.

Both Powell and Brainard have vowed to fight high prices. “We know that high inflation takes a toll on families. . . “We will use our tools to support the economy and a strong labor market, and to prevent higher inflation from being entrenched,” Powell said.

Brainard added that she is committed to “getting inflation down at a time when people are focused on their jobs and how far their paychecks will go”, as well as supporting a growing economy that includes everyone.

This month the Fed started calm down its $ 120 billion monthly asset purchase program, with the intention of ending the stimulus completely next summer.

But recently inflation data, which showed that US consumer price growth jumped at the fastest pace in about three decades last month, has given rise to the prospect that the Fed will have to reject its patient approach to monetary policy by accelerate the “slimming down” of the bond buying program before interest rates are rapidly raised several times next year.

Biden has not appointed anyone for the handful of vacancies on the Fed board, including vice president of oversight, who is responsible for bank regulation. The White House said those appointments would begin in early December.

Powell, 68, was promoted to the Fed chair by Trump in 2017 after serving as governor from 2012 and once working as a top treasury official under George HW Bush. He was considered the least controversial choice for Biden, especially since Powell’s broad bipartisan support is likely to facilitate the course of his Senate confirmation process.

Powell’s supporters also argued that a change of leadership in a time of such great economic uncertainty could cause unnecessary market volatility.

After leading the central bank’s response to the pandemic, Powell won praise for preventing more extreme market panic and leading the U.S. economy through one of its worst contractions.

By sticking with Powell, a Republican, Biden disregarded progressive’s critique of the incumbent’s record on regulation, which caused what they believe was a dilution of post-financial crisis rules for the largest financial institutions.

Elizabeth Warren, the left-wing Democratic senator from Massachusetts, said she was opposed to Powell’s reappointment and would vote against him. But she said she supported Biden’s nomination of Brainard as vice president. “Powell’s failures on regulation, climate and ethics make the still vacant position of vice president of oversight critical,” she said.

Brainard was opposed to easing capital and liquidity requirements for U.S. banks during Powell’s tenure, as well as amendments to Volcker’s real estate guidelines.

Following the announcement, a closely watched market benchmark of interest rate expectations, eurodollar futures, indicated that at least three quarter point rate hikes had been fully priced by December 2022. The two-year treasury yield, which moves along with interest rate expectations. , has risen to its highest level since March 2020.

Biden’s choices will have to be confirmed by the Senate. Early comments from lawmakers suggested Republicans would largely support Powell’s reappointment.

Pat Toomey, the top Republican on the Senate Banking Committee, said he would support Powell’s confirmation, but was less firm in his support for Brainard, saying he was “concerned about regulatory policies that would support Governor Brainard.” His comments were echoed by Kevin Cramer, another Republican on the banking committee.

Biden’s choice adheres to the rarely broken tradition of re-appointing an existing Fed chairman during a president’s first term – a nod to policy continuity and central bank independence.

Barack Obama reappointed Ben Bernanke as Fed chairman in 2009, while Bill Clinton did the same with Alan Greenspan in 1996. But Trump broke the mold four years ago when he chose Powell rather than give Janet Yellen a second term.

Additional post by Kate Duguid and Lauren Fedor

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