Biden to keep Powell as Fed chairman, Brainard becomes vice chairman | Local News

Biden also said he would nominate Lael Brainard, the only Democrat on the Fed’s board of governors and the preferred alternative to Powell among many progressives, as vice president, second place.

A separate post of vice president for supervision, a banking regulatory post, remains vacant, along with two other positions on the Fed’s board of directors. These positions will be filled in early December, the president said.

Biden’s decision, taken after careful consideration, lends a note of continuity and bipartisanship at a time when soaring inflation is weighing on households and increasing risks to the economic recovery. By supporting Powell, a Republican who was first elevated to his post by President Donald Trump, Biden dismissed progressives’ complaints that the Fed has weakened banking regulations and has been slow to take climate change into account. in its supervision of banks.

“If we are to continue building on this year’s economic success, we need stability and independence at the Federal Reserve – and I have full confidence, after their trial by 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, which begins in February, Powell would face a difficult and high-risk balance: rising inflation is causing hardship for millions of families, darkening the economic recovery and undermining the Fed’s mandate to maintain. stable prices. 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 rates, at least once if not more. If the Fed moves too slowly to raise rates, inflation can accelerate further and force the central bank to take more drastic action later to bring it under control, potentially causing a recession. Yet if the Fed raises rates too quickly, it could stifle hiring and economic recovery.

Powell’s re-appointment must be approved in a vote by the Senate Banking Committee and then confirmed by the entire Senate, which is considered very likely.

If confirmed, Powell would remain one of the most powerful economic leaders in the world. By raising or lowering its benchmark interest rate, the Fed seeks to slow or stimulate growth and hiring, and keep prices stable. His efforts to lead the US economy, the largest in the world, usually have global consequences.

The Fed’s short-term 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 mortgages. credit card. The Fed also oversees the country’s largest banks.

Senate Banking Panel Chairman Sherrod Brown, an Ohio Democrat, and committee senior Republican Pat Toomey both immediately endorsed Powell on Monday.

“I look forward to working with Powell to stand up to Wall Street and stand up for working people, so they can share in the prosperity they are creating,” Brown said.

Toomey said that while he disagreed with Powell’s continuation of the Fed’s ultra-low rate policies, “his recent comments give me confidence that he recognizes the risks of higher inflation. and more persistent and is prepared to act accordingly to control it “.

Powell, a 68-year-old lawyer by training, was appointed to the Fed’s Board of Governors in 2011 by President Barack Obama after building a lucrative career in private equity and 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.

The ensuing spike in inflation forced the Powell Fed to slow down its economic stimulus sooner than it had anticipated. At its last meeting in early November, the central bank said it would start cutting back on its monthly bond purchases and likely end them by mid-2022. These purchases were aimed at keeping long-term borrowing costs low to stimulate borrowing and spending.

Powell has avoided much of the blame, at least on Capitol Hill, for inflation surging to a three-decade high, even though one of the Fed’s mandates is to keep prices stable through its control of prices. interest rate. Instead, Republicans in Congress have singled out President Joe Biden’s economic policies as the main culprit.

For months, Powell called inflation “transient” and said it mainly reflected unusual supply chain bottlenecks resulting from the pandemic and increased demand for goods such as automobiles, furniture, electronics and appliances.

More recently, the Fed chairman admitted that the higher prices have persisted longer than expected and have broadened into categories such as rents and medical care that are not directly related to shortages. supply. 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, whose terms of vice president will end in January.

Brainard was also 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 stimulate inflation. Instead, the Fed said it would wait for real evidence of the price hike. This reflects the view of some Fed officials that low unemployment and even rising wages no longer necessarily accelerate inflation.

Yet this new policy approach, which was crafted in an atmosphere of still low inflation, has come under great pressure this year as inflation has skyrocketed.

Brainard also played a key role in the Fed redefining its maximum employment target as “broad and inclusive.” This means that he now takes measures such as the unemployment rate for African Americans, and not just Americans as a whole, into account in his policy decisions.

But his most important role has been to help Powell lead the Fed’s response to the brutal pandemic recession. In the spring of 2020, as businesses closed and 22 million Americans were laid off, the Powell Fed reduced its short-term key rate to zero. To restore confidence in the banking system, the Fed has launched a series of emergency loan programs.

It also bought corporate bonds for the first time, as well as municipal bonds, in stable financial markets. And the central bank bought $ 4.2 trillion in treasury bills and mortgage-backed bonds to keep long-term interest rates low.

Yet the Fed also took steps that relaxed financial regulations put in place after the 2008-09 financial crisis and recession, prompting Senator Elizabeth Warren, a Democrat from Massachusetts, to call Powell “” dangerous man ”to lead the Fed.

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