President Joe Biden chose not to shock the ship and further US economic policy with the choice to continue the tenure of Federal Reserve Chairman Jerome Powell, headed by the central bank. This is despite a push from some Democrats who wanted someone tougher with the banks and more determined on the issue of climate change. Lyle Brainard, who ran for office, is pictured as deputy chair of the Federal Reserve Board.
Jerome Powell, 68, was seen by his supporters in government and markets as a stable hand and as a person whose personal approach to the people helped renew bipartisan support for the central bank one decade after the institution’s reputation was damaged in the 2008 economic crisis. Formerly, ten years ago he was appointed a member of the seven-governor council of the Federal Reserve by President Barack Obama and previously served as Fed chairman four years ago by former President Donald Trump.
The political support cultivated by Powell was of great value throughout his tenure as chairman. First, when Trump attacked him in 2018 and 2019 for raising interest rates and then, when he led a swift and aggressive response to halting the economic panic caused by the Corona plague in March 2020.
Clashes with President Trump
Under Powell’s leadership and in collaboration with Congress and the U.S. Treasury Department, the Fed has implemented one of the most daring economic responses since World War II. The Fed cut interest rates to zero and then purchased a trillion-dollar government debt and offered to buy additional trillions in loans and other assets to support markets.
In 2020, Powell revealed a significant change in the way the bank conducts interest rate policy when it announced that the Federal Reserve would stop raising interest rates to prevent inflationary pressures, and instead leave interest rates lower for a longer period to encourage faster recovery after downturns.
The change reflected the Fed’s reassessment of the economy in 2019, when inflation did not rise as policymakers had expected to happen alongside the decline in the unemployment rate to its lowest level in 50 years. Powell instituted a U-turn in policy from raising the interest rate to cutting it, all while President Trump harshly criticized him, to the point of personal threats and a public threat to Petro for failing to establish a lighter monetary policy.
The Fed feared a return to the 2007 recession
At the beginning of the year, Fed executives were keen to avoid retelling what happened in the 2007-2009 recession, so weak growth led the bank to launch innovative measures to boost the economy, where the short-term interest rate was already close to zero. But the $ 1.9 trillion reopening of the economy and federal aid that Biden signed in March, in addition to trillions of federal aid funds in 2020, led to a higher-than-expected rise in consumer prices, which climbed 4.4 percent in September from a year earlier. to use it.
The Fed recently began shrinking its $ 120 billion-a-month bond program, at a rate that should lead to a complete halt to purchases by June. It will then focus on the question of when and at what speed to raise the interest rate from zero.
Powell and Brainrad claimed that the pressure on prices was created due to bottlenecks due to disruptions in supply chains, temporary shortages and a resurgence in the number of flights. But in recent weeks Powell has warned that price pressures may also reflect stronger demand and supply chains saturated to such an extent that inflation will be more stubborn than the bank’s commissioners and others initially predicted.
“We must be in a position to deal with this risk,” he told a news conference on November 3. “I think we can be patient. If a response is needed, we will not hesitate.”
Progressive economists have spoken out in favor of Powell
In recent months, some incumbent Democratic lawmakers and former lawmakers alongside progressive economists have spoken out in favor of extending Powell’s term. They argued that his ability to skip over the party polarization that caused many offices in Washington to get stuck put him in a unique position to provide political support and intellectual backing for a progressive policy that might have eluded even the best-qualified Democrats.
“In this political environment, any other candidate would risk being perceived as a political choice,” said Roberto Perley, an analyst at research firm Cornerstone Macro in Washington. Powell led economic policy in the direction “that is very much in line with the priorities of this administration, but he did it for good economic reasons and not for political reasons,” said Perley, a former Fed economist.
Powell navigated attacks by Trump and Democratic Sen. Elizabeth Warren “on an impressive display of political survival,” said Mark Somerlin of economic advisory firm Evenflow Macro. If the Federal Reserve raises interest rates to slow the economy next year, “Biden may feel the way Trump felt, but continuity will be better for the country,” he said.
A minority of progressives have pressured Biden to replace Powell with someone more committed to aggressive regulation of banks and the use of the bank’s oversight tools to deal with the climate crisis that is also affecting the financial system. Several members of these groups supported Lyle Brainard, an economist appointed president of the Federal Reserve by President Obama in 2014. It supported Powell’s monetary policy decisions while opposing his measures to ease regulatory easing.
Lyle Brainard, President Biden’s Candidate for Vice Chairman of the Fed / Photo: Associated Press, Susan Walsh
Promotion of Bernard – Compromise between the camps
On September 28, Senator Elizabeth Warren told Powell at a Senate hearing that she would oppose his appointment because of the Fed’s tendency to reduce regulation of banks in recent years. “It makes you a dangerous person to lead the Fed,” she said. Later, she cited dubious trading operations done by senior Federal Reserve officials as proof that Powell’s leadership had failed.
Other Democrats have expressed concern that the priorities of the progressives may bind the Fed to the party struggles that the institution has largely managed to evade. They feared that such measures would undermine its effectiveness when establishing a new monetary policy focused on a more crowded labor market.
Raising Bernard’s status as deputy chairman is a kind of compromise between the two camps. The Vice-Chairman of the Board of Governors, alongside the President of the Federal Reserve of New York, have traditionally served as the chief vice-chairmen of the Fed in shaping monetary policy. If she is approved for the position, Governor Bernard will be able to begin serving as vice chair this coming February.
In recent years, Bernard has strongly supported the change in policy made under Powell’s leadership and generally supports the delay in raising the interest rate in order to avoid the danger of inflation falling below the Bank’s 2% target.
Powell has scheduled hundreds of meetings with lawmakers
Powell has scheduled hundreds of meetings with lawmakers during his years in office and is a favorite of politicians from both parties. Member of Parliament Emanuel Caliber (Democrat from Montana) recalled inviting Powell to his county a few years ago and introducing him to a group representing a cross-section of Missouri rural residents alongside Kansas City residents.
Powell used this political capital after the plague began in 2020 and encouraged lawmakers to spend more money. “It’s time to use the immense fiscal power of the United States to do what we can to support the economy and try to get through it with as little damage as possible,” he said in April 2020.
At this point, the Fed has already cut interest rates to zero and bought large amounts of debt to prevent a financial collapse. He also unveiled backing measures for companies, cities and countries that went far beyond anything the central bank did in the 2008 economic crisis.
The unemployment rate, which in February stood at a half-century low of 3.5%, jumped to 14.8% in April 2020, the highest level since the 1930s, when the economy was put into a state similar to a medical coma in order to curb the spread of the corona. Unemployment has fallen steadily since then.
The Federal Reserve’s response has garnered praise from lawmakers – in contrast to the lifebuoys for banks organized by the central bank in the 2008 economic crisis that were unpopular with the public. “We all well remember the spring of 2020, when the world economy almost collapsed, and to a large extent it did not happen because of the actions you and your colleagues took,” Senator John F. Kennedy (a Republican from Louisiana) said at a July hearing. “You made sure to take the main lane. True, there were days you did it while spitting blood and you had to ‘think positive’ to cope, but you did not deviate from the king’s path,” Kennedy told him.
Jerome Powell (68)
currently: Chairman of the Federal Reserve since 2018. This coming February his second term will begin
Previously: Banker from the private sector, but has also served in various positions in the Ministry of Finance over the years as well as in the Board of Governors since 2011
Something else: Republican, is considered too June among some Republicans. His fortune is estimated at $ 20 million to $ 55 million