Posted on Nov 22, 2021, 3:29 PMUpdated Nov 22, 2021, 3:46 PM
Joe Biden made his choice. The president announced Monday that he was proposing to retain Jerome Powell as head of the US Federal Reserve to conduct monetary policy for the next four years. “President Powell has provided consistent leadership during a period of unprecedented challenges, including the greatest economic recession in modern history and the attacks on the independence of the Federal Reserve,” the White House said. in a press release. Appointed by Donald Trump in 2017, the first term of Jerome Powell, 68, expires in early February.
The White House proposes to appoint Lael Brainard, also in the running for the post of president, as vice-president. “Lael Brainard – one of our country’s foremost macroeconomists – has played a leading role in the Federal Reserve, working with Powell to contribute to our country’s robust economic recovery,” the statement also said. of the White House.
This announcement ends months of speculation. After reassuring the financial markets at the start of the Covid crisis in March 2020 and ensuring a rapid recovery of the American economy, Jerome Powell was given a wide favorite, with a renewal of the current mandate for central bankers. The former banker and lawyer had, however, been weakened in recent weeks by the revelation of personal investments by bank executives that did not comply with the best ethical rules. Two of them resigned and the Fed board urgently issued new, more restrictive rules.
Above all, the surge in inflation in recent months has fueled questions about the Fed’s analysis of the US economy and the relevance of its monetary policy in a period of exit from the crisis. For months, Jerome Powell supported the large fiscal stimulus wanted by the new Biden administration to counter the effects of the crisis on jobs.
But the Fed’s confidence in a phase of purely “transitory” price increases has gradually eroded. In early November, the Monetary Policy Committee announced the start of the decline in its asset purchases (Treasury bills and mortgages), the first step before a possible rate hike.
The Senate should safely validate the choice of the White House. Jay Powell, who was appointed president by Donald Trump in 2017, is a moderate Republican who has the support of some of the elected officials of the Grand Old Party. With 50 Republican senators and 50 Democrats, Lael Brainard’s candidacy was deemed more difficult to validate by elected officials. The choice of Joe Biden will therefore be able to override the opposition of Democratic Senator Elizabeth Warren, who described him as a “dangerous man”, and that of a few other reluctant Democrats. Jerome Powell was first appointed to the Board of Governors at the end of 2011 by Barack Obama.
Economist and Democrat, Lael Brainard, 59, has sat on the board of the Fed since 2014 but had not, in recent weeks, received any promise of Republican support. She is perceived a little more “dove” than Jerome Powell, that is to say anxious not to destroy growth by tightening monetary policy (via a rate hike) too fast or important. A history pointed out by the supporters of Jerome Powell, at a time when many economists are calling for a slightly more restrictive policy.
Lael Brainard was above all considered more willing to ensure strict supervision of US banks, and to highlight climate issues. She had been approached to become the first Secretary of the Treasury, a position ultimately devolved to former Fed President Janet Yellen. The latter had shown its support for a renewal of the mandate of Jerome Powell, before showing more neutrality in recent weeks.
If the central bank is independent, the appointments of governors also respond to balances and political negotiations. Three other positions than that of the president are to be filled: one is vacant, and two will open in the coming months: Randal Quarles, vice-president in charge of supervision, announced his departure at the end of the year, and Vice-President Richard Clarida’s term expires at the end of January.
The next few months will be difficult for the Fed to manage: inflation is on everyone’s mind in the United States, with consumer prices up 6.2% year on year. While the unemployment rate has fallen to 4.6% of the working population, economists are calling for the end of the asset purchase program initiated in early November to be speeded up. The key interest rates, set between 0 and 0.25% by the Fed since March 2020, are in real terms very negative given the level of inflation, point out economists.