The Senate confirms the appointment of Jerome Powell to chair the Federal Reserve for a second term

President Biden said last fall He will reappoint Mr. PowellThe choice of continuity as the scale of the central bank’s challenges in controlling inflation becomes more apparent. Mr. Powell, 69, was bugged by the President

Donald Trump

In 2018 to lead the central bank, six years after winning an appointment from President Barack Obama to the Board of Governors.

Lawmakers on the Senate Banking Committee approved his confirmation March 16 by 23 votes to 1, with only Senator Elizabeth Warren (D, Massachusetts) opposing.

The current episode of high inflation has not significantly damaged Mr. Powell’s standing on Capitol Hill. But his characterization of last year’s price increases as temporary and his decisions to initially withdraw stimulus slowly — particularly after the Biden administration approved a $1.9 trillion spending bill — drew criticism from economists on both sides of the aisle.

“As part of restoring its credibility, the Fed needs to engage in some sort of subsequent action report that tries to analyze why … they were as wrong as they were in assessing inflation risks and judging inflation as temporary through 2021,” said Treasury Secretary, Lawrence Summers. In an interview last week.

Mr. Powell confessed at a press conference in March That, in hindsight, it was appropriate to withdraw the stimulus earlier if the Fed predicted that the supply disruptions in the pandemic economy would persist as long as they lasted, especially after colliding with very strong demand last year.

There was a very strong financial backlash. There was a very strong monetary policy reaction. The demand was really strong. No one should deny it, Mr. Powell He said at an economic conference March 21. “But you can’t drop that much demand in any of our models and produce that kind of inflation without supply-side constraints.”

Since the end of last year, Powell has shifted the Fed toward rapidly removing stimulus. The Fed has raised interest rates twice this year, most recently last week by half a percentage point — the first such increase since 2000 — to a range of 0.75% to 1%. Powell indicated that further increases of half a point are possible until the central bank is certain that inflation will slow.

Such a political path makes it more likely that officials will raise interest rates enough to cause stagnation. This is a different scenario from the more optimistic scenario plotted in officials’ March policy forecasts, a so-called soft landing in which inflation falls but unemployment remains low and the economy continues to grow.

The war in Ukraine It has complicated the Fed’s ability to make a smooth landing because wars are often inflationary and Punishment of the West for Russia It threatens to further exacerbate commodity price increases and global supply chain disruptions.

Consumer prices rose 6.6% in March from a year earlier, according to the Federal Reserve’s preferred measure, the Commerce Department’s personal consumption expenditures price index. On Wednesday, the Labor Department’s separate Consumer Price Index indicated that US inflation fell to an annual rate of 8.3% in April, but remained close to the fastest pace in four decades.

Meanwhile, the unemployment rate rose in April stop at 3.6%near the lowest level in half a century.

“The history is that every time inflation is above 4% and unemployment is below 4%, we have had a recession for the next two years,” Mr. Summers said. “It’s definitely possible that we’ll make a little touchdown.”

One concern is that price hikes become severe enough or persist long enough to alter the inflationary psychology of consumers and businesses, making these expectations self-fulfilling. If workers expect a strong rate of inflation within a year, they can seek higher wages now.

We cannot allow the wage-price vortex to occur, nor can we allow inflation expectations to become unfettered. It’s just something we can’t allow,” Powell said last week.

Last fall, some progressive Democrats lobbied hard for Biden to replace Mr. Powell with someone who would stick to his post-pandemic easy-money stimulus policies with a tougher approach to financial regulation, particularly through the use of banking supervision tools to shape climate change policy.

White House advisers saw Powell as the one who could easily secure Senate confirmation. They also credit him with providing a steady hand during the pandemic and an earlier period during which he sidestepped attacks from Mr. Trump, who wanted more Fed stimulus before the pandemic.

Mr. Powell’s nomination was coupled with the promotion of Federal Reserve Governor Lyle Brainard to serve as vice president. Senate Assure her of this position On April 26.

Mr. Biden has managed to put his stamp on the central bank by confirmation Earlier this week from Two other economists To fill vacancies on the Washington-based Federal Reserve Board of Governors – Lisa Cook of Michigan State University and Philip Jefferson of Davidson College.

With Mr. Powell’s confirmation, Mr. Biden will have appointed four of the six Fed governors to their current positions. Some analysts have speculated that the new candidates may favor less sharp rate hikes, but that they are unlikely to slow the Fed into a faster pace of tightening as long as inflation remains well above the Fed’s 2% target.

Mrs. Cook and Mr. Jefferson He said at their Senate appointment session That tackling high inflation should be a central bank priority, Fed governors have traditionally been oriented toward consensus.

President Michael Barr, a professor of law at the University of Michigan, has also been nominated for the post Federal Reserve Vice Chair of Banking Supervision And fill in one last vacancy on the seven board. His confirmation hearing is set for May 19.

Mr. Powell’s first four-year term as president ended in early February, and he has served as “interim president” ever since. The process of confirming Fed nominations stalled in February when Democrats refused to move Biden’s picks individually and Republicans refused to vote on his initial selection for banking supervision vice president Sarah Blum Raskin, who quit looking in March.

The political support that Mr. Powell cultivated proved valuable throughout his first term. He underwent a drastic policy shift from raising to lowering interest rates in 2019 as Mr. Trump threatened to fire the Fed leader for not offering easier monetary policy. Mr. Powell has made it clear in private that there are no circumstances, other than his death, under which he would be voluntarily forced to leave his job.

Later, he coordinated one of the boldest economic policy responses since World War II, coordinating with Congress and the U.S. Treasury. The Fed cut interest rates to zero and then bought trillions of dollars in government debt and offered to buy another trillions of loans and other assets to support credit markets.

At a congressional hearing in early March, Senator John F. Kennedy (Republic of Los Angeles) praised Mr. Powell’s swift action when the pandemic hit in March 2020. “The government shut down the private sector…markets panicked. Everyone is looking at you to calm things down,” he said. . “you did.”

write to Nick Timiraos at [email protected]