Jerome Powell confirmed for a second term as Fed chairman

Jerome H. Powell, chairman of the Federal Reserve, said in an interview Thursday that lowering inflation is likely to be painful, but that allowing price gains to persist would be the bigger problem: addressing the great challenge it faces. its central bank as it officially begins its second term at its helm.

Mr. Powell, who Senators confirmed for a second four-year term at the helm of the central bank with an 80-19 vote on Thursday, holds one of the most important jobs in the United States and the world economy at a time of rapid inflation and profound uncertainty.

consumer prices it was up 8.3 percent in April of the previous year, according to the data reported on Wednesday. And while inflation has declined slightly year-on-year, it has remained close to the fastest pace of the past 40 years, and details in the release suggested that price pressures continue to be hot.

The Fed has already started raising interest rates to try to cool the economy by doing it the largest increase since 2000 when it raised its borrowing costs by half a percentage point this month. Mr. Powell and his colleagues have signaled that they will continue to push rates higher than they try to curb spending and hiring, hoping to bring supply and demand back into balance and push inflation down.

Mr. Powell suggested Thursday a an interview with Marketplace that an even greater increase of 0.75 percentage points in the interest rate, although not considered at the moment, might be appropriate if economic data were worse than officials expect.

“The process of reducing inflation to 2% will also include some suffering, but ultimately the most painful thing would be if we fail to deal with it and inflation takes root in the economy at high levels,” Mr. Powell said. said. “It’s just people who lose the value of their paychecks due to high inflation and, eventually, we’d have to go through a much deeper recession.”

Mr. Powell, who was chosen as Fed governor by former President Barack Obama and later elevated to president by former President Donald J. Trump, was renamed by President Biden late last year.

Although he was popular with lawmakers for much of his term, several Republicans and Democrats voted against the nomination. Senator Robert Menendez, a Democrat from New Jersey, sued the central bank lack of promotion Latin leaders. Senator Richard Shelby, Republican of Alabama, quoted high inflation opposing Mr. Powell, posting on Twitter that “we shouldn’t reward failure.”

Inflation is likely to be the defining challenge of Powell’s second term. As Mr. Shelby’s comments suggest, the Fed has been criticized responding too slowly to rapid price gains last year. Mr. Powell pointed out that policy makers have done their best with the data in hand.

“If you had hindsight, you would have gone back and it probably would have been better for us to raise rates a little earlier,” Powell said in his Marketplace interview. “I’m not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did our best.”

With Mr. Powell’s confirmation, Mr. Biden has now appointed four of the Fed’s seven governors in Washington, putting his imprimatur on the central bank at a pivotal time.

The Senate confirmed last month Lael Brainardformer Fed governor, as Mr. Biden’s choice for Fed Vice President, an influential position within the central bank.

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

Ms. Brainard and Mr. Powell have long been aligned on politics, and the new Fed governors – Ms. Cook and Mr. Jefferson – have indicated during their confirmation hearings that they too are focused on fighting inflation. Fed officials see price stability as a key element for sustainable economic growth.

“High inflation is a major threat to a long and sustained expansion, which we know raises the standard of living for all Americans and leads to shared and widespread prosperity,” said Ms Cook. during his confirmation hearing. “This is why I am committed to keeping inflation expectations well anchored”.

In addition to the new faces at the seven-person Board of Governors in Washington, many of the Fed’s 12 regional reserve banks are also undergoing staff changes. Susan M Collins was chosen as chairman of the Federal Reserve Bank of Boston, and just this week it was announced Lorie K. Logan would head the Federal Reserve Bank of Dallas. Both will start this summer.

The heads of the Fed’s Kansas City and Chicago banks are both will be retiring soonpaving the way for further leadership changes.

The seven Fed governors and the New York Fed chairman hold permanent seats on the Fed panel that votes on monetary policy, while the other regional presidents rotate in and out of four other seats.

The new central bankers will take office at a difficult time, because while the economy is strong now, the Fed’s policies are likely to have to weaken it and damage the labor market to cool inflation. The labor market now has many more openings than workers looking for work and wages are rising rapidly.

“This is not a healthy situation for an economy because it results in high inflation,” Powell said in Thursday’s interview. “This is a significant part of the inflationary story.”

The looming question for the Fed is whether officials will be able to slow the economy enough to moderate inflation without spurring a recession – something Mr. Powell and his colleagues have repeatedly acknowledged could be a challenge.

“There are huge events, geopolitical events going on around the world, which are going to play a very big role in the economy in the coming year,” Powell said. “So the question of whether we can perform a soft landing or not may actually be down to factors we don’t control.”