Biden to keep Powell as Fed chair, Brainard gets vice chair
WASHINGTON — President Joe Biden said Monday he is nominating Jerome Powell for a second fouryear term as Federal Reserve chair, endorsing his stewardship of the economy through a brutal pandemic recession in which the Fed’s ultra-low rate policies helped bolster confidence and revitalize the job market.
Biden also said he would nominate as vice chair Lael Brainard, the lone Democrat on the Fed’s Board of Governors and the preferred alternative to Powell among many progressives.
His decision strikes a note of continuity and bipartisanship at a time when surging inflation is burdening households and raising risks to the economy’s recovery. In backing Powell, a Republican who was elevated to his post by President Donald Trump, Biden brushed aside complaints from progressives that the Fed has weakened bank regulation and has been slow to take account of climate change in its supervision of banks.
“When our country was hemorrhaging jobs last year, and there was panic in our financial markets, Jay’s steady and decisive leadership helped to stabilize markets and put our economy on track to a robust recovery,” Biden said, using Powell’s nickname.
In a second term that begins in February, Powell would face a difficult and high-risk balancing act: Inflation has reached a three-decade high, causing hardships for millions of families, clouding the recovery and undercutting the Fed’s mandate to keep prices stable. But with the economy still 4 million-plus jobs shy of its pre-pandemic level, the Fed has yet to meet its other mandate of maximizing employment.
Next year, the Fed is widely expected to begin raising its benchmark interest rate, with financial markets pricing in at least two increases. If it moves too slowly to raise rates, inflation may accelerate further and force the central bank to take more draconian steps later to rein it in, potentially causing a recession.
Yet if the Fed hikes rates too quickly, it could choke off hiring and the recovery.
If confirmed, Powell would remain one of the world’s most powerful economic officials. By either raising or lowering its short-term interest rate, the Fed seeks to either cool or stimulate growth and hiring, and to keep prices stable. Its efforts to direct the U.S. economy, the largest in the world, typically have global consequences.
The Fed’s benchmark rate, which has been pegged near zero since the pandemic hammered the economy in March 2020, influences a wide range of consumer and business borrowing costs, including for mortgages and credit cards. The Fed also oversees the nation’s largest banks.
Biden still has the opportunity to fill three more positions on the Fed’s Board of Governors, including the vice chair for supervision, a top bank regulatory post.
Brainard’s elevation to the Fed’s No. 2 position follows the key role she played in the Fed’s emergency response to the pandemic recession. She is part of a “troika” of top policymakers that includes Powell and Richard Clarida, whom she will replace as vice chair in February.
Brainard was an architect of the Fed’s new policy framework, adopted in August 2020, under which it said it would no longer raise rates simply because the unemployment rate had fallen to a low level that could spur inflation. Instead, the Fed said it would await actual evidence that prices are rising.
Brainard also was key in the Fed’s redefinition of its maximum employment goal as “broad and inclusive,” taking into account the unemployment rate for Blacks and other groups and not just for Americans as a whole in policy decisions.
She has also spoken about ways the Fed could more directly take account of climate change in bank supervision. Many environmental groups say loans to oil and gas companies, as well as to commercial real estate developers, could default and cause large losses at banks, should environmental damage worsen or renewable energy provide a greater share of power generation.
“Climate change,” she said, “is projected to have profound effects on the economy and the financial system, and it is already inflicting damage.”