WASHINGTON (AP) – President Joe Biden on Monday said he was appointing Jerome Powell to a second four-year term as Federal Reserve Chairman, endorsing his handling of the economy through a brutal pandemic recession in which politicians The Fed’s ultra-low rates have helped boost confidence and boost the job market.
Biden also said he would appoint Lael Brainard, the only Democrat on the Fed’s board of governors and the preferred alternative to Powell among many progressives, to the post of Vice President.
His decision strikes a note of continuity and bipartisanship at a time when soaring inflation is weighing on households and increasing risks for the recovery of the economy. By supporting Powell, a Republican who was elevated to his post by President Donald Trump, Biden dismissed progressives’ complaints that the Fed has weakened banking regulations and has been slow to factor climate change into its oversight. banks.
“When our country suffered a job hemorrhage last year and there was panic in our financial markets, Jay’s consistent and decisive leadership helped stabilize markets and put our economy on the back burner. on track for a solid recovery, ”Biden said, using the Powell nickname.
In a second term that begins in February, Powell would face a difficult and high-risk balance: Inflation has hit a three-decade high, causing hardship for millions of families, darkening the recovery and undermining the tenure of the United States. Fed to keep prices stable. But with the economy still more than 4 million jobs below its pre-pandemic level, the Fed has yet to fulfill its other mandate of maximizing employment.
Next year, the Fed is expected to start raising its benchmark interest rate, with financial markets forecasting at least two increases. If it moves too slowly to raise rates, inflation can accelerate further and force the central bank to take more drastic measures later to bring it under control, potentially causing a recession. Yet if the Fed raises rates too quickly, it could stifle hires and the recovery.
If confirmed, Powell would remain one of the most powerful economic leaders in the world. By raising or lowering its short-term interest rate, the Fed seeks to slow or stimulate growth and hiring, and keep prices stable. His efforts to lead the US economy, the world’s largest, usually have global consequences.
The Fed’s benchmark rate, which has been close to zero since the pandemic hit the economy in March 2020, influences a wide range of borrowing costs for consumers and businesses, including mortgages and cards credit. The Fed also oversees the country’s largest banks.
For months, Powell has been the front-runner to be re-elected, but a vigorous campaign by environmental and public interest groups in favor of Brainard has darkened the picture in recent weeks. Critics, including Senator Elizabeth Warren, D-Massachusetts, have argued that Powell relaxed banking regulations put in place after the 2008-2009 financial crisis.
And two other senators voiced their opposition to Powell last week because they said he was not sufficiently committed to using the Fed’s regulatory tools to fight global warming.
Brainard, meanwhile, has cast 20 dissenting votes against changes to financial rules over the past four years. In March 2020, she opposed a regulatory change that she said would reduce the amount of reserves that big banks had to hold to hedge against losses. She also spoke more forcefully than Powell about ways the Fed can deal with global warming.
Biden sought to allay those concerns. He said Powell had pledged to make climate change “a top priority” and agreed to ensure “that our financial regulations stay ahead of emerging risks.”
“Jay, along with the other members of the Fed board that I will appoint, must ensure that we never again expose our economy and our American families to these kinds of risks,” he said. at the White House, referring to the 2008 financial crisis.
Biden still has the option of filling three other positions on the Fed’s board of governors, including that of vice chairman of oversight, a prominent banking regulatory post. Those positions will be filled in early December, Biden said.
Biden admitted that some Democrats had encouraged him to choose a new Fed chairman, for a “fresh start.” But he said he wanted to go in a different direction.
“We need stability and independence at the Federal Reserve,” he said. “I think broad, bipartisan Fed leadership is important, especially now, in such a politically divided nation.”
Biden praised Powell for his efforts to achieve maximum jobs, but did not press him on inflation, which has become the biggest economic threat to his administration. Biden said the US economy is in the midst of a “historic recovery” which gives the Fed the opportunity “to attack inflation from a position of strength, not of weakness.”
Powell said “we know that high inflation negatively impacts families, especially those who are less able to afford the higher costs of basic necessities, such as food, shelter and transportation.” . He pledged to use the tools of the Fed – mainly raising interest rates – “to prevent higher inflation from taking hold.”
Powell’s re-appointment is expected to have broad approval by the Senate Banking Committee, and then by the Senate as a whole.
Some liberal Democrats such as Sen. Sherrod Brown of Ohio, chairman of the Banking Committee, have supported Powell, as have moderate Democrats, including Sen. Jon Tester of Montana. He was also endorsed by Sen. Pat Toomey, R-Pa., The leading Republican on the panel, and will likely receive broad support from Republicans.
Wall Street applauded the renomination, with stock prices rising and fear measures easing in the market immediately after the announcement. The S&P 500 is on track to close at another record.
The 68-year-old lawyer was appointed to the Fed’s Board of Governors in 2011 by President Barack Obama after a lucrative career in private equity and after holding several positions in the federal government.
Unlike his three immediate predecessors, Powell does not have a doctorate. in economy. Yet he earned generally high marks for handling perhaps the world’s most important financial situation, especially in his response to the coronavirus-induced recession.
Yet soaring inflation forced the Powell Fed to slow down its economic stimulus sooner than expected. At its last meeting in early November, the central bank said it would start cutting its monthly bond purchases by $ 120 billion this month and likely end it by mid-2022. These purchases were aimed at keeping long-term borrowing costs low to stimulate borrowing and spending.
For months, Powell called inflation “transient,” but more recently he admitted that higher prices have persisted longer than expected. At a press conference this month, Powell acknowledged that high inflation could last until the end of summer 2022.
Brainard’s rise to the number 2 position of the Fed follows the key role it played in the Fed’s emergency response to the pandemic recession. She is part of a “troika” of key policy makers that includes Powell and Richard Clarida, whom she will replace as vice president in February.
Brainard was the architect of the Fed’s new policy framework, adopted in August 2020, under which it said it would no longer hike rates simply because the unemployment rate had fallen to a low level that could boost the economy. ‘inflation. Instead, the Fed said it would wait for real evidence of the price hike.
Brainard also played a key role in the Fed redefining its maximum employment target as “broad and inclusive,” taking into account the unemployment rate of blacks and other groups and not just Americans as a whole. political decisions.
She also discussed ways in which the Fed could take climate change into account more directly in banking supervision. Many environmental groups say loans to oil and gas companies, as well as commercial real estate developers, could default and cause significant losses to banks if environmental damage worsens or renewables provide a larger share. of electricity production.
“Climate change,” she said, “is expected to have profound effects on the economy and the financial system, and it is already inflicting damage. “
Associated Press writer Josh Boak contributed.
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