Joe Biden has nominated Jay Powell for re-election as chairman of the Federal Reserve. He chose to maintain continuity at a delicate moment when the US economy faces persistently high inflation and an irregular recovery in the labor market.
Lael Brainard is considered Powell’s main contender for the top position. He was elected as the vice chairman, which is currently held by Richard Clarida.
Biden praised Powell’s response to the coronavirus pandemic, his commitment to the Fed’s full employment and stable price goals, and his defense of the “integrity and credibility” of the central bank during the Donald Trump administration.
Biden said: “We can fight inflation from a strong rather than a weak standpoint.”
The decision ended months of speculation about the Biden administration’s interest in reshaping the Federal Reserve. It comes as the central bank debates how to fine-tune monetary policy in the face of supply-related disruptions and rising inflationary pressures.
Both Powell and Brainard vowed to fight high prices. “We know that high inflation will cost families… We will use our tools to support the economy and a strong labor market, and prevent higher inflation from becoming entrenched,” Powell said.
Brainard added that she is committed to “reducing inflation when people are focused on their jobs and how far their salaries will go” and “supporting an economic growth that includes everyone.”
This month, the Fed began to reduce its $120 billion monthly asset purchase plan, and intends to completely end its stimulus plan next summer.
But recent inflation data shows that consumer price growth in the United States last month increased at the fastest rate in about 30 years, increasing the prospect that the Fed will have to abandon its patient monetary policy approach by accelerating bond “downsizing.” Buy the plan before several rapid rate hikes next year.
Biden has not appointed anyone to the few vacant positions on the Fed’s board of directors, including the supervisory vice chairman responsible for bank supervision. The White House stated that these appointments will begin in early December.
Powell, 68, was promoted to Chairman of the Federal Reserve by Trump in 2017 after becoming governor in 2012, and served as a senior Treasury official under the leadership of George HW Bush. He is considered the least controversial candidate for Biden, especially Powell’s broad bipartisan support may allow his confirmation process to be passed in the Senate.
Powell’s supporters also said that in a period of such obvious economic uncertainty, changes in leadership may cause unnecessary market volatility.
After leading the central bank’s response to the pandemic, Powell won praise for preventing more extreme market panics and guiding the U.S. economy through one of the worst contractions.
Biden insisted that Republican Powell ignored progressives’ criticism of the current president’s regulatory record, which led to what they called the biggest financial institution’s post-crisis rules to be watered down.
Senator Elizabeth Warren, a left-wing Democratic Party from Massachusetts, said she opposed Powell’s re-election and would vote against him. But she said she supported Biden’s nomination of Brainard as vice chairman. “Powell’s failures in regulation, climate and ethics have made the vacant position of supervisory vice chairman critical,” she said.
Brainard opposed the relaxation of the capital and liquidity requirements for Bank of America during Powell’s tenure and the revision of the Volcker rule guidelines on proprietary trading.
After the announcement, the much-watched market measure of interest rate expectations, Eurodollar futures, indicated that by December 2022, at least three 25-basis-point interest rate hikes have been fully digested. The two-year U.S. Treasury bond yield fluctuates with interest rate expectations, rising to the highest level since March 2020.
Biden’s candidate needs to be confirmed by the Senate. Early comments by lawmakers indicate that Republicans will largely support Powell’s re-election.
Pat Toomey, the top Republican of the Senate Banking Committee, said he would support Powell’s confirmation, but his support for Brainard was less firm, saying that he “expressed concerns about the regulatory policies that Governor Brainard will support. “. Kevin Cramer, another Republican on the Banking Committee, responded to his comments.
Biden’s choice adheres to the rarely-broken tradition of reappointing an existing Fed chairman to the post during the president’s first term-a recognition of the continuity of policymaking and the independence of the central bank .
Barack Obama reappointed Ben Bernanke as chairman of the Federal Reserve in 2009, and Bill Clinton did the same with Alan Greenspan in 1996. But Trump broke the routine when he chose Powell instead of Janet Yellen for re-election four years ago.
Additional reporting by Kate Duguid and Lauren Fedor