Jerome Powell confirmed for a second term as Fed Chair

Jerome Powell confirmed for a second term as Fed Chair

Federal Reserve Chair Jerome H. Powell said in an interview Thursday that cutting inflation will likely be painful, but allowing gains to continue — facing the biggest challenge ahead — would be the bigger problem who his central bank stands for, as he officially is, begins his second term at the helm.

Mr. Powell, whom senators confirmed Thursday 80-19 for a second four-year term as head of the central bank, holds one of the most consequential jobs in the United States and the global economy amid rapid inflation and deep uncertainty.

According to data reported on Wednesday, consumer prices rose 8.3 percent in April from a year earlier. And while annualized inflation eased slightly, it remained near its fastest pace in 40 years and the details of the release suggested price pressures remain hot.

The Fed has already begun raising interest rates to cool the economy, the biggest hike since 2000 when it raised borrowing costs by half a percentage point this month. Mr Powell and his colleagues have signaled they will continue to push interest rates higher while trying to rein in spending and hiring in hopes of balancing demand and supply and bringing down inflation.

Mr. Powell, in an interview with Marketplace on Thursday, hinted that an even larger 0.75 percentage point rate hike, while not currently under consideration, might be appropriate if economic data turns out worse than officials were expecting.

“The process of bringing inflation down to 2 percent will also involve some pain, but ultimately what would be most painful would be if we failed to deal with it and inflation became entrenched at high levels in the economy.” said Mr Powell also said. “These are just people losing the value of their paychecks to high inflation, and ultimately we would have to go through a much deeper downturn.”

Mr. Powell, who was elected Fed governor by former President Barack Obama and then made chairman by former President Donald J. Trump, was re-nominated by President Biden late last year.

Though he was popular with lawmakers for much of his tenure, several Republicans and Democrats voted against the nomination. Senator Robert Menendez, a Democrat from New Jersey, quoted the Federal Reserve as saying failure to encourage Latino guide. Senator Richard Shelby, Republican of Alabama, quoted high inflation defying Mr. Powell and posting on Twitter that “we shouldn’t reward failure”.

Inflation is likely to be the key challenge in Mr Powell’s second term. As Mr. Shelby’s comments suggest, the Fed has been criticized for being too slow to respond to quick gains over the past year. Mr Powell has stressed that policy makers have done their best with the data available.

“If you had perfect insight in hindsight, you would come back and it probably would have been better for us to raise interest rates a little sooner,” Mr. Powell said in his interview with Marketplace. “I’m not sure how much of a difference it would have made, but we have to make real-time decisions based on what we knew at the time and we did our best.”

With Mr. Powell’s endorsement, Mr. Biden has now appointed four of the Fed’s seven governors in Washington, imposing his imprimatur on the central bank at a crucial moment.

The Senate last month confirmed Lael Brainard, a former Fed governor, as Mr. Biden’s pick for Fed vice chair, an influential position within the central bank.

This week, the Senate confirmed two more new Fed governors – Lisa D. Cook and Philip N. Jefferson. Mr. Biden has also named Michael S. Barr as the new vice chairman for oversight and his confirmation hearing before the Senate Banking Committee is scheduled for next week.

Ms. Brainard and Mr. Powell have long shared policy, and the Fed’s newest governors — Ms. Cook and Mr. Jefferson — indicated during their confirmation hearings that they, too, are focused on fighting inflation. Fed officials see stable prices as a key building block for sustained economic growth.

“High inflation is a serious threat to a long, sustained expansion that we know is raising the living standards of all Americans and leading to broader, shared prosperity,” Ms. Cook said during her confirmation hearing. “That’s why I’m committed to keeping inflation expectations well anchored.”

In addition to the new faces on the seven-member Board of Governors in Washington, there are also personnel changes at several of the Fed’s 12 regional reserve banks. Susan M. Collins has been elected president of the Federal Reserve Bank of Boston, and just this week it was announced that Lorie K. Logan will head the Federal Reserve Bank of Dallas. Both start this summer.

The heads of the Fed banks in Kansas City and Chicago are both set to retire soon, paving the way for more leadership changes.

The Fed’s seven governors and the New York Fed president have permanent seats on the Fed body that votes on monetary policy, while the other regional presidents move in and out of four other seats.

The new central bankers will take office at a difficult moment because, while the economy is strong now, Fed policy will likely have to weaken it and hurt jobs to cool inflation. The labor market now has far more vacancies than workers, and wages are rising rapidly.

“It’s not a healthy situation for an economy because it leads to high inflation,” Mr Powell said in Thursday’s interview. “It’s an essential part of the inflation story.”

The looming question for the Fed is whether officials will be able to slow the economy enough to dampen inflation without stimulating a recession — something Mr. Powell and his colleagues have repeatedly acknowledged is likely to be one be a challenge.

“There are big events, geopolitical events around the world that are going to play a very important role in the economy over the next year or so,” Mr. Powell said. “The question of whether or not we can pull off a soft landing may actually depend on factors beyond our control.”

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