Biden appoints Powell as chairman of the Federal Reserve | Business and Economic News

Federal Reserve Chairman Jerome (Jay) Powell will continue to serve as the steward of the US economy after President Joe Biden nominated him for a second four-year term on Monday.

Fed governor Lyle Brainard, once touted as Powell’s possible successor to Powell’s top position, was appointed by Biden as the Fed’s vice chairman-the second most powerful position in the U.S. central banking system.

At a press conference on Monday, Biden praised Powell for his leadership in the unprecedented economic and financial turmoil caused by the COVID-19 pandemic.

Biden said: “Last year, when our country lost a lot of jobs and our financial markets panic, Jay’s stable and decisive leadership helped stabilize the market and put our economy on the path of strong recovery.”

Powell was nominated by former President Donald Trump as his first term as chairman of the Federal Reserve. He has repeatedly broken the tradition of the White House and criticized Powell and the Federal Reserve for not succumbing to his wishes on interest rate policy.

Former President Donald Trump has repeatedly broken the White House tradition and criticized Fed Chairman Jerome Powell for not succumbing to his will on interest rate policy. [File: Alex Brandon/AP]

On Monday, Biden pointed out that his decision to re-nominate a Fed chairman appointed by the Republican government was partly due to Powell’s insistence on maintaining the independence of the Fed during Trump’s administration.

Biden said: “In the last administration, he withstood unprecedented political interference and successfully maintained the integrity and credibility of this institution. This is just one of the many reasons why Jay has received support from various political fields.”

Biden also emphasized Powell’s efforts to more firmly incorporate the economic impact of climate change into the Fed’s focus when formulating policies.

Biden said: “He made it clear to me that the top priority is to accelerate the Fed’s efforts to respond to and mitigate the risks that climate change poses to our financial system.”

Before the announcement on Monday, there was widespread speculation that Biden might nominate Lael Brainard for the top position in the Federal Reserve. As the only Democrat on the Federal Reserve Board of Governors, Brainard is known on Wall Street for being friendly and tough to workers, which makes her a favorite of progressives in Washington.

By choosing Brainard to become Powell’s No. 2 person at the Fed, Biden said that he ensured that the leadership of the central bank received broad support throughout the political arena.

Biden said: “Especially now in such a politically divided country, I think we need to do our best to eliminate the fierce partisanship of today’s politics from such important things as the independence and credibility of the Federal Reserve.” That’s why I’m so proud to nominate Dr. Lyle Brainard as Vice Chairman of the Federal Reserve.”

Balancing employment and inflation

The Central Bank of the United States shoulders the dual mission of achieving price stability and maximizing employment. But finding the right combination of policies to achieve these goals has become the subject of intense debate this year.

After years of low inflation below the Fed’s 2% target interest rate, the chaos in the supply chain and the shortage of raw materials and workers have increased corporate costs, and price pressures have returned.

In turn, companies at least pass on part of the higher costs to consumers. last month, U.S. consumer prices have accelerated At the fastest annual rate in 30 years.

However, despite increasing price pressures, Powell and his policymakers still prioritize returning Americans to work, even if companies strive to fill near-record job vacancies and workers are confident in their employment prospects. So much so that they are quitting their jobs at a record speed.

The U.S. October Consumer Price Index recorded its biggest annual increase in 30 years [File: Al Behrman/AP]

The Fed’s most powerful tool to control price increases is its benchmark interest rate. In the days when the pandemic began last year, it lowered the benchmark interest rate to a level close to zero.

If the Fed raises interest rates prematurely, it may hinder economic growth and thus undermine the recovery. However, if the announcement of interest rate hikes takes too long, prices may get out of control and force interest rates to rise even more.

The wages of American workers are rising as employers try to attract scarce job seekers with better wages and benefits. But higher salaries have not kept up with the pace of inflation.

In addition, rising prices of necessities such as food, energy and rent have caused disproportionate damage to low-income households-Powell pointed out this difficulty in a joint press conference with Biden on Monday.

He said: “We know that high inflation will bring losses to families, especially those who cannot meet the higher costs of necessities such as food, housing and transportation.” “We use our tools to support the economy and a strong labor market. And prevent higher inflation from becoming entrenched.”

So far, Powell and his policymakers at the Fed have insisted that this year’s inflation spike will prove to be “temporary”-Powell admits that this term needs to be explained.

At the last policy-making meeting, the Fed determined that the economy has recovered enough to start reducing bond purchases, which will help control long-term borrowing costs. But Powell said at the time that the process of cutting stimulus measures should not be taken as a signal that the Fed is also preparing to raise interest rates.

Many Fed observers believe that Powell’s renomination on Monday indicates that the Fed is expected to start raising interest rates sometime in the middle of next year.

“The continuity of the Fed’s leadership may indicate the continuity of the current monetary policy stance. We continue to expect interest rate hikes soon after the end of the cut. Interest rate hikes,” Goldman Sachs economists led by Jan Hatzius said in a report to clients on Monday.

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