Biden to keep Powell as Fed chair

President also taps vice chair preferred by top progressives

WASHINGTON — President Joe Biden said Monday that he is nominating Jerome Powell for a second four-year 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 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.

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.

For months Powell was the favorite to be reappointed, but a vigorous campaign by environmental and public interest groups in support of Brainard clouded the picture in recent weeks.

Critics, including Sen. Elizabeth Warren, D-Massachusetts, argued Powell had loosened bank regulations that were put in place after the 2008-09 financial crisis.

And two other senators expressed opposition to Powell last week because they said he was insufficiently committed to using the Fed’s regulatory tools to combat global warming.

Brainard, meanwhile, cast 20 dissenting votes against financial rule changes in the past four years.

In March 2020, she opposed a regulatory change that she said would reduce the amount of reserves large banks were required to hold to guard against losses. She has also spoken more forcefully than Powell on ways the Fed can confront global warming.

Biden sought to assuage those concerns.

He said Powell had committed to making climate change “a top priority” and had agreed to make sure “that our financial regulations are staying ahead of emerging risks.”

“Jay, along with the other members of the Fed Board that I will nominate, must ensure that we never again expose our economy and American families to those kinds of risks,” he said at the White House, referring to the 2008 financial crisis.

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. Those positions will be filled in early December, Biden said.

Biden acknowledged that some Democrats encouraged him to pick a new Fed chair, for a “fresh start.”

But the president said he wanted to go in a different direction.

“We need stability and independence at the Federal Reserve,” he said. “I believe Fed leadership with broad and bipartisan is important, especially now, in such a politically divided nation.”

Biden praised Powell for his efforts to achieve maximum employment, but did not press him on inflation, which has emerged as the biggest economic threat to his administration. Biden said the U.S. economy is in the midst of a “historic recovery” that gives the Fed an opportunity to “attack inflation from a position of strength, not weakness.”

Powell said “we know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials, like food, housing and transportation.”

He pledged to use the Fed’s tools — principally raising interest rates — “to prevent higher inflation from becoming entrenched.”

Powell’s renomination is expected to be approved by the Senate Banking Committee and then the full Senate.

Wall Street cheered the renomination, with stock prices rallying and measures of fear in the market easing immediately after the announcement.

YURI GRIPAS/ABACA PRESS Jerome Powell speaks after President Biden announced that he was sticking with the Fed chair.