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The tough road ahead for new Fed chairman Jerome Powell

US President Joe Biden has chosen to re-elect Jerome Powell as President of the Federal Reserve for his second term. The 68-year-old economic adviser, lawyer and former investment banker will face the challenges facing the world’s largest economy.

The recovery by the Biden administration shows continued confidence in the current policies of the Federal Reserve, which has chosen to keep interest rates near zero percent despite record inflation currently rocking the country.

“I have no doubts that the focus of President Powell and Dr (Lael) Brainard (Vice President) on keeping inflation low, price stability and full employment will make our economy stronger. than ever. Together, they also share my deep belief that urgent action is needed to address the economic risks posed by climate change and stay ahead of emerging risks in our financial system, ”Biden said in a statement.

Powell’s Crown of Thorns

While Powell’s Federal Reserve was instrumental in preventing the collapse of the U.S. economy during the early months of the pandemic, when the U.S. faced its biggest unemployment crisis in decades. decades, its road is not easy.

The main challenge he will face in his second term would be balancing searing inflation while ensuring full employment and a steady economic recovery. Despite the exhortations of many, the Fed has not raised interest rates primarily to ensure that the benefits of the economic recovery are conferred on a wider section of society while trying to ensure that as many As many Americans as possible are re-employed.

“It is extremely important that we are right,” Powell said recently at a conference sponsored by the South African Reserve Bank. “I have no doubts that we will do it in the next year or so. I think that until then it is going to be extremely difficult, certainly in the short term.”

But if inflation turns out to be non-‘transient,’ as the Fed has often become accustomed to labeling it, then Powell would be tasked with ensuring that he can quickly navigate the inner workings of the central bank. most powerful in the world to prevent erosion. of the wealth of its citizens.

At the same time, Powell faces increasing criticism from different sections of society. Many U.S. business leaders have expressed doubts about the Fed’s ability to cope with rising inflation, with opponents like Jack Dorsey even warning of looming hyperinflation in the country.

Powell would need to regain the confidence of American corporate hegemony, as well as critics on both sides of the political spectrum, to continue leading the United States towards a strong economic recovery.

A recent ethical controversy over former Fed chairmen actively trading at a time when the central bank was heavily involved in security markets and criticism of easing banking regulations have only increased the pressure on Powell.

“We have to have the complete confidence of the American people that we are working in their best interests all the time,” said Powell when introducing tougher Fed employee trading laws.

A strong economic recovery is not only vital for the future of President Biden and the political prospects of his Democratic Party, but also an important yardstick for competition against the main emerging rival of the United States, China.

“There are two institutions in Washington for which appointments are sacred: one is the Supreme Court and the other is the Fed,” Peter Hooper, who worked at the Fed for nearly three decades, told FT.

(Edited by : Shoma bhattacharjee)


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