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Biden bets Fed's Powell can usher in full U.S. economic recovery

EconomyNov 23, 2021 12:33AM ET
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2/2 © Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell attends the House Financial Services Committee hearing on Capitol Hill in Washington, U.S., September 30, 2021. Al Drago/Pool via REUTERS/File Photo 2/2

By Jeff Mason and Howard Schneider

WASHINGTON (Reuters) - U.S. President Joe Biden on Monday nominated Federal Reserve Chair Jerome Powell for a second four-year term, positioning the former investment banker to continue the most consequential revamp of monetary policy since the 1970s and finish guiding the economy out of the pandemic crisis.

Lael Brainard, the Federal Reserve board member who was the other top candidate for the job, will be vice chair, the White House said.

Combined, the nominations pair two monetary policy veterans and collaborators on a recent overhaul of Fed policy, which shifted the emphasis to jobs from the preeminent focus on inflation established some four decades ago. Their challenge will be to keep U.S. job growth underway while also ensuring recent strong inflation doesn't become entrenched.

“We’ve gone from an economy that was shut down to an economy that's leading the world in economic growth,” Biden said in remarks at the White House with the nominees.

Citing Powell’s “steady leadership” that calmed panicked markets, and his belief in monetary policies that support maximum employment, Biden said "I believe Jay is the right person to see us through."

The United States is still dealing with the impacts of the pandemic, including inflation, he said but the country has made “enormous progress” including adding nearly 6 million jobs since he was sworn in and increasing wages - positive signs that are a testament to the Federal Reserve.

"I respect Jay's independence," Biden said, directly addressing critics from his own Democratic party who wanted him to bump Powell, a Republican, for a Democrat. "At this moment of both enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve."

Powell, 68, and Brainard, 59, will both need to be confirmed in their Fed leadership roles by the Senate, currently controlled by Biden's Democratic party but closely divided. The president has for now left open several other Fed positions, including that of vice chair for supervision, that he may fill as soon as next month and that could be used to toughen bank regulation, improve diversity, and make other changes his supporters have urged for the Fed.

But for the Fed's core monetary policy - managing inflation and setting interest rates as the economy reopens from the pandemic - Biden opted for continuity.

"They are veterans and mature public servants and there has been very little difference between them” on monetary policy said Adam Posen, president of the Peterson Institute for International Economics.

Together Powell, a moderate Republican elevated by former President Donald Trump, and Brainard, who served in prior Democratic administrations, "gives potentially non-partisan credibility to a more realistic assessment of inflation risks" the United States faces.

That reassessment could mean interest rate increases coming sooner than later if inflation, which both promised to fight, proves more persistent than expected.

“We know that high inflation takes a toll on families,” Powell said in brief remarks at the White House event where Biden announced the nominations.

Brainard also pledged to support a growing economy “that includes everyone,” and a Fed that “serves all Americans in every community.”

U.S. stocks hit record highs after the news. Treasury bond yields also rose and the dollar strengthened.

Powell's reappointment had been encouraged by a cross-section of investors and economists with both conservative and liberal leanings, and was welcomed by Congress members of both parties.

The Fed's aggressive actions at the start of the coronavirus pandemic in early 2020 were hailed as staving off a potential Depression. Later, some lauded his focus on jobs in the new policy framework launched just over a year ago, and others argued it would be too risky to oust the Fed chair during a sensitive transition from the emergency measures taken during the health crisis.

CHANCE TO CEMENT A LEGACY

Powell's second term would begin in early February, and the coming months will be crucial in determining whether his legacy will be as the Fed chair who elevated employment to the center of Fed policy, or as the one who let inflation surge and reestablish itself as a chronic problem.

Powell, who joined the Fed as a governor in 2012, did not anticipate being named chair when Trump was elected. With a pre-Fed career that had included eight years as a partner at The Carlyle Group (NASDAQ:CG), one of the world's largest private equity firms, and no formal economics training, he had instead eyed the vice chair for supervision position eventually filled by Randal Quarles.

He was confirmed as Fed chair on an 84-13 vote, with Kamala Harris, now Biden's vice president, among those opposing him.

He soon ran afoul of Trump, who hurled unprecedented public broadsides against Powell over Twitter (NYSE:TWTR) and in frequent media appearances. At one point Trump labeled Powell an "enemy" of the United States for raising interest rates and explored whether he could fire him.

Powell not only survived but arguably grew in the job.

Initially hawkish as a governor, upon assuming the helm for U.S. monetary policy he considered himself a student at first, paying particular attention to arguments over whether the Fed's focus on inflation had disadvantaged workers. The years since the 2007 to 2009 financial crisis had convinced many that was the case.

In November 2018, Powell launched a policy review that culminated in August 2020 with the adoption of an approach allowing economic expansions to run longer and "hotter," with temporarily higher rates of inflation. Ideally that would lead to job gains that reach broadly into society and narrow the gaps in unemployment among different demographic groups.

It was an approach that conformed to what seemed then to be the changing nature of the U.S. economy, with embedded low inflation and low interest rates, and adapted as well to the demands of a pandemic crisis that threatened a permanent hole in the U.S. job market.

Just over a year into that new approach, however, inflation is running at levels not seen in decades as resurgent demand for goods and services outstrips the supply of materials and labor in an economy still shaking off the rust of pandemic shutdowns.

"The new leadership team faces some very tough calls in the period ahead," wrote Evercore ISI vice chair Krishna Guha.

Biden bets Fed's Powell can usher in full U.S. economic recovery
 

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Comments (31)
Santrina Huynh
Santrina Huynh Nov 23, 2021 10:27AM ET
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Tesla
Rodney Dangerfield
Rodney Dangerfield Nov 23, 2021 1:54AM ET
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When Trump signed his two trillion dollars during a 2-month stretch we printed more money than we have since the signing of the Constitution.... That's not including what bought and paid for Joe's been spending... apparently most of you brainiacs can't figure out who done what or who to blame lol
Whaling Trawler
Whaling Trawler Nov 23, 2021 12:15AM ET
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Glad I've been buying gold and silver coins and bars and mining stocks...
ZS Beck
ZS Beck Nov 22, 2021 11:20PM ET
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Biden bet...I bet that together they ruin this country, Run it down to the ground with their money printing and overspending.
Benjamin McIntire
Benjamin McIntire Nov 22, 2021 10:19PM ET
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Powell is Trump’s nominee, so why are his snowflake simps so triggered? Trump is just a big spend and loose monetary policy politician anyways.
luckyyy gold
luckyyy gold Nov 22, 2021 7:54PM ET
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Biden judgement is the worst. Must remember this
Paul Richard
Paul Richard Nov 22, 2021 7:54PM ET
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You mean 2nd worst, behind your "savior:
AY Haych
AY Haych Nov 22, 2021 2:50PM ET
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Daddy Powell keep pumping my calls
Don Burris
Don Burris Nov 22, 2021 2:47PM ET
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Just the headline is an absolute joke without reading the article.
Benjamin McIntire
Benjamin McIntire Nov 22, 2021 2:47PM ET
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palmer gossett
palmer gossett Nov 22, 2021 2:21PM ET
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what do you leftists think about the nomination of Omarova as banking regulator
Matt Brackley
Matt Brackley Nov 22, 2021 2:18PM ET
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Brandon let's JPOW continue to robbery.
bert prince
bert prince Nov 22, 2021 1:48PM ET
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powel was too agressive in 2018 and was too dove in 2021.2 monetary mistakes in a row what a great record !
Kim Boesgaard Lauritsen
Kim Boesgaard Lauritsen Nov 22, 2021 1:09PM ET
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good news, glad to hear this. Powell is doing a great job.
Jamie An
Jamie An Nov 22, 2021 11:49AM ET
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Powell will be the hokish powell cause nomination is OVER!
Matt Novakovich
Matt Novakovich Nov 22, 2021 11:49AM ET
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please
Dave Jones
Dave Jones Nov 22, 2021 11:45AM ET
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wouldn't you think that would be priced in?
Kerry kong
Kerry kong Nov 22, 2021 11:33AM ET
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Powell, you are the best.
Michael Angelo
Michael Angelo Nov 22, 2021 11:23AM ET
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A political position needs a political decision. Like it or not, is right to keep dr. Frankenstein BUT with the co-chair looking and learning, because who needs to replace someone in the electric chair . Later one day, soon, he'll retire because health issues (probably covid).
Tre Hsi
Tre Hsi Nov 22, 2021 11:22AM ET
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"Powell, a Republican and former private equity lawyer elevated to the Fed's top job by Trump"  -- so tell us again how Biden is a socialist???
TheLast LoserDon
TheLast LoserDon Nov 22, 2021 11:22AM ET
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Great thought!
Miriam Morkhul
Miriam Morkhul Nov 22, 2021 11:22AM ET
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Aparently J. Powell has written monetary conservative papers in his past.
Steffen vdm
Steffen vdm Nov 22, 2021 11:03AM ET
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The junkies are over the moon. Their dealer is coming with more financial drugs
Raj Shekar
Raj Shekar Nov 22, 2021 10:26AM ET
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long way to go for inflation & rallies. Bears await 2022.
Ricardo Diogo
Rcd72 Nov 22, 2021 10:20AM ET
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it is PPP!!!! Prize for Ponzi Powell!!!
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Nov 22, 2021 10:10AM ET
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Rally not because of Dr Jerome Bubble, but is because of Brainard. thank you
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Nov 22, 2021 10:07AM ET
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Dr Jerome Bubble is riding on the stimulus lion 🦁. nobody can unseat him, he himself doesn't know how to get off the lion 🦁.
TheLast LoserDon
TheLast LoserDon Nov 22, 2021 9:46AM ET
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Should bust our SP500 target of 4750 - 4800 by year end with ease, maybe even this week!
TheLast LoserDon
TheLast LoserDon Nov 22, 2021 9:43AM ET
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BOOM! Well done President Biden!
Joe Ko
Joe Ko Nov 22, 2021 9:28AM ET
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free money for life
 
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