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Through his action against inflation, Jerome Powell, President of the American Federal Reserve, marked the monetary policy of this institution and was followed by the major central banks, such as the ECB and the Bank of England.
« Inflation is way too high », has been hammering the boss of the FED for months. Whereas a year ago, he assured that it was only transitory. But since then, prices have skyrocketed. And today, it is no longer just a question for the FED to fight against inflation, it must also prove its credibility as the guardian of price stability. This is why, during his December speech, Jerome Powell declared: I would like to assure all Americans that we understand the ordeal they are going through with high inflation. And that we make the commitment to bring it back towards the 2% objective. »
But who is this man whom nothing predestined to take the head of the most influential institution for the economic future of the planet?
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He never studied economics.
Born 69 years ago, into a family of six children, his father was a lawyer, his maternal grandfather dean of the Faculty of Law, a graduate of Georgetown University, Jerome Powell began a career as a lawyer before turn to investment banking. This man, who had never studied economics, was nevertheless appointed by President Bush Sr. Under-Secretary of State for the Treasury in 1992. Under the administration of Barack Obama, he sat on the Board of Governors of the FED , before being named by Donald Trump at the head of this institution. A moderate Republican, he is nevertheless criticized by Trump who is trying to dismiss him. But, surprise: in 2021, Jerome Powell is reappointed by Democrat Joe Biden.
He made history
His action at the head of the FED constitutes a turning point for the world economy. Jerome Powell has put an end to cheap money, believes Karl Toussaint du Wast, co-founder of Netinvessement, an online wealth management consultancy: “He will go down in history as the one who turned off the tap of “Quantitative Easing” [L’assouplissement quantitatif consiste pour une banque centrale à intervenir de façon massive et prolongée sur les marchés financiers en achetant des actifs, NDLR] initiated by Janet Yellen. And it’s a very thankless role. This is the role of the governor of the FED or the European Central Bank for Christine Lagarde, it is to take thankless decisions, but unfortunately necessary. For ten years, between 2010 and 2020, there were ten years of “Quantitative Easing”. That is to say debt repurchase by central banks and injection of liquidity into the economy. It was a party for ten years! This coming inflation imposes on the central banks the only joker they have left, that of stopping the “Quantitative Easing” and raise rates.
A small margin to fight against inflation
But, on the other hand, this restrictive policy risks causing a global recession. This is what Jerome Powell wants to avoid. He who was blamed during the pandemic for these millions of Americans thrown into poverty, and the few others, enriched. This time, if the causes of inflation are known – health crisis, war in Ukraine, energy crisis – it is impossible to predict how all this will evolve: “The shortage of materials and the bankruptcies that will happen, 2023 will be the start of the recession from an economic point of view. So he has little time left to put out the fire of this inflation. He was right to do it in a rather violent and brutal way, because it had to be curbed in the medical sense. It was necessary to apply a tourniquet to this inflation in an extremely strong way. There, he begins to announce the beginning of rate hike relief to finally prepare businesses and the economic world. But its room for maneuver is extremely small. So he has no choice but to be a bit of the Bogeyman, anticipating what will happen to us in 2023.
There is still a long way to go before inflation calms down for a long time. Objective of the FED, like that of the ECB: to reach the figure of 2%, the only one capable of guaranteeing price stability.
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