Biden retains Powell as Fed Chair, Brainard as Vice Chair
Washington — President Joe Biden announced Monday that he is nominating Jerome Powell for a second four-year term as Federal Reserve Chairman, endorsing Powell’s handling of the economy through a brutal pandemic recession in which the Fed’s ultra-low interest rate policies have helped boost confidence and revitalize the labor market. . .
Biden also said he would nominate Lyle Brainard, the only Democrat on the Fed’s Board of Governors and Powell’s favorite alternative among many progressives, as vice president.
The position of vice president for supervision, a regulatory position for the bank, remains vacant, along with two other positions on the Fed’s board of directors. Biden said those positions will be filled in early December.
His decision is a note of bipartisanship and continuity at a time when rising inflation is weighing on families and raising the risks of an economic recovery. In his support of Powell, a Republican who was first promoted to office by President Donald Trump, Biden has brushed aside complaints from progressives that the Fed has weakened banking regulation and been slow to factor in climate change in its supervision of banks.
“If we are to continue to build on this year’s economic success, we need stability and independence at the Federal Reserve — and I have full confidence after their experience of fire over the past 20 months that President Powell and Dr. Brainard will provide the strong leadership our country needs,” Biden said in a statement.
In a second term, beginning in February, Powell will face a difficult and high-risk balancing act: Inflation has reached its highest level in three decades, causing hardship for millions of families, stymiing the recovery and undermining the Fed’s mandate to maintain price stability. . But with the economy still more than 4 million jobs shy of its pre-pandemic level, the Federal Reserve has yet to meet its other mission of maximizing employment.
Next year, the Fed is widely expected to start raising its benchmark interest rate, with financial markets pricing in two increases. If the Fed moves too slowly in raising interest rates, inflation could accelerate further and force the central bank to take more aggressive steps later to rein it in, potentially causing a recession. However, if the Fed raises rates too quickly, it could stifle employment and recovery.
If confirmed, Powell would remain one of the world’s most powerful economic officials. By raising or lowering the short-term interest rate, the Fed seeks to either calm or stimulate growth and employment, and maintain price stability. And her efforts to steer the US economy, which is the largest in the world, usually have global consequences.
The Federal Reserve’s benchmark interest rate, which has been pegged near zero since the pandemic hit the economy in March 2020, affects a wide range of consumer and business borrowing costs, including mortgages and credit cards. The Federal Reserve also supervises the largest banks in the country.
Powell’s re-nomination must be approved by the Senate Banking Committee and then endorsed by the full Senate, which is widely expected.
He has the support of some liberal Democrats such as Senator Sherrod Brown of Ohio, chairman of the Banking Committee, and moderate Democrats such as John Tester of Montana. It was also endorsed Monday by Senator Pat Toomey, R-P., the ranking Republican member of the Banking Committee, and is likely to receive broad support from Republicans.
“I look forward to working with Powell to stand up to Wall Street and stand up for workers, so they share in the prosperity they make,” Brown said.
Three Democratic senators, including Senator Elizabeth Warren of Massachusetts, have said they would oppose Powell’s re-nomination. Warren called him a “dangerous man” for his efforts to loosen banking regulations while Senators Jeff Merkley of Oregon and Sheldon Whitehouse of Rhode Island said he was not sufficiently committed to using the Fed’s oversight of the financial system to combat climate change.
A White House source said Biden and his staff are consulting with members of Congress on the appointment of Powell, and insisted on anonymity to discuss private conversations in the administration. The source said Biden recently met with Warren at the White House to give her opinion, and the president spoke with both Brainard and Powell on Friday.
Wall Street welcomed the re-nomination, with stock prices soaring and market fears subsiding immediately after the announcement. The S&P 500 is on track to close at another record high.
Powell, a 68-year-old lawyer by training, was nominated to the Federal Reserve Board of Governors in 2011 by President Barack Obama after a lucrative career in private equity and served in a number of federal government roles.
Unlike his three immediate predecessors, Powell lacks a Ph.D. in the economy. Nevertheless, it has earned high marks overall for running perhaps the most important financial center in the world, particularly in its response to the recession caused by the Corona virus.
However, rising inflation this year has forced the Fed to back off on economic stimulus sooner than it had imagined. At its most recent meeting in early November, the central bank said this month it would begin reducing its $120 billion monthly bond purchases and likely end them by mid-2022. These purchases were intended to keep long-term borrowing costs low to stimulate borrowing and spending.
Powell has avoided much of the blame for inflation, at least on Capitol Hill, even though one of the Fed’s mandates is to maintain price stability through its control of interest rates. Instead, congressional Republicans have pointed to Biden’s economic policies as the main culprit. Most economists blame increased demand for goods such as cars, furniture and appliances along with a lack of supplies for higher prices.
For several months, Powell described inflation as “temporary,” but more recently, the Fed chair acknowledged that high prices had lasted longer than he had expected. At a press conference this month, Powell acknowledged that high inflation could continue into the late summer of 2022.
Brainard’s rise to No. 2 follows the Fed’s key role in the Fed’s emergency response to the pandemic recession. She is part of a “trilogy” of top policymakers that includes Powell and Richard Clarida, which she will replace as vice president in February.
Brainard was also the architect of the Federal Reserve’s new policy framework, adopted in August 2020, under which he said it would not raise rates simply because the unemployment rate had fallen to a low level that could stimulate inflation. Instead, the Fed said it would wait for actual evidence of a rate hike. This reflects the view of some Federal Reserve officials that lower unemployment and even higher wages no longer necessarily accelerate inflation.
However, this new political approach, crafted in an atmosphere of persistently low inflation, has come under severe pressure.
Brainard also played a key role in the Federal Reserve’s redefinition of the maximum employment target as “widespread and comprehensive.” This means that it now takes measures such as the unemployment rate for African Americans, and not just for Americans as a whole, into account in its policy decisions.
She has also played a distinguished role as an opponent of the Fed’s moves in the past four years to loosen banking regulations that were tightened after the 2008 financial crisis. Since 2018, she has been the only dissident on 20 votes on financial rules.
In March 2020, for example, she opposed a regulatory change she said would reduce the amount of reserves large banks would have to hold to guard against losses.
Brainard also played a leading role in evaluating how the Federal Reserve might take more direct account of climate change in its supervision of banks.
In a speech last month, Brainard said the Fed is likely to provide guidance to the banks it oversees on how they can better assess the risks that climate change poses to their loan portfolios, although he did not provide a timeline. Many environmental groups say loans to oil and gas companies, as well as commercial property developers, could default and cause significant losses to banks, should environmental damage worsen or renewable energy provide a greater share of power generation.
“Climate change is expected to have profound effects on the economy and the financial system, and it is already taking its toll,” she said.
This was contributed by Associated Press writer Josh Bock.
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