President Joe Biden and his advisers are close to making a decision about reappointing Federal Reserve Board Chairman Jerome Powell when his term ends in February.
But the public outcry over persistently high inflation may have changed the terms of the discussion.
Biden is making the decision as inflation climbs to levels not seen in three decades, with prices rising for a variety of goods and services as well as necessities such as food and fuel. On Wednesday, the Labor Department reported that inflation jumped 6.2% in October from a year earlier, a surprise jump after the Fed was unable to push inflation to 2%, its modest target rate.
Last week, Powell and current Federal Reserve Board Governor Lyle Brainard met with Biden in person at the White House, just days after Biden told reporters he intended to make his plans for the Fed known “quite early.” have intention.
With public acknowledgment of declining Biden’s job performance, his party is grappling with the blows of a gubernatorial election in Virginia in early November, and congressional Republicans harassing him for rising prices, following Biden’s Fed appointment. The verdict has taken on even more weight.
Bank regulation on the back burner
From earlier this year, when speculation began whether Biden would reappoint Powell, the obvious choice for him was to take Brainard to the job. But at the time, the focus of the debate was on their different approaches to banking regulation.
When people think of the Fed, they primarily think of its role in setting interest rates and controlling the money supply in the United States. However, the Fed also plays a major role in regulating some of the largest financial institutions in the country.
Powell, a Republican appointed by former President Donald Trump to lead the Fed, has taken critics of the left-wing approach as a highly approved stance when it comes to regulation of large financial institutions.
Brainard, the only Democrat on the Fed board, is more aligned with left-wing members of his party, such as US Senator Elizabeth Warren of Massachusetts, believing that stricter oversight is necessary to avoid a repeat of the financial crisis that crippled America. The economy between the end of 2007 and the middle of 2009.
Now, however, with inflation rising and the president and his party facing poor public approval ratings, strict banking rules may be a second level issue for Biden.
“If you want to look at the economy right now and have a ledger of things to worry about, the soundness and security of the banking system isn’t at the top of that list,” said Mark Hamrick, senior economic analyst at Bankrate.com. Told VOA. “In the long term, it should be at the top of the list, but for now, banks are doing quite well. We haven’t had any major banking failures for quite some time.”
inflation important issue
Those who pay attention to the Federal Reserve often classify board members and the larger Federal Open Market Committee, which sets interest rates, as “hawkish” or “dovish”.
Hawks are policymakers who are sensitive to rising inflation and raise interest rates rapidly to keep inflation from spiraling out of control, even as it cools the economy to the point where not everyone can find a job. Is.
Pigeons, in contrast, prefer high rates of employment over low inflation, and they will vote to maintain low interest rates until the economy considers “full employment”. This is not to say that pigeons will tolerate any level of inflation, but only that they do not mind that inflation is slightly higher than the Fed’s announced 2% target rate, while jobs are still being created.
By any measure, both Powell and Brainard fall into the dovish category. As the US economy recovers from the pandemic-induced recession last year, both have backed policies that have kept interest rates close to zero and pumped huge amounts of money into the system, even as inflation eased. has also started increasing.
Both have said that they believe the current wave of inflation is a temporary effect of the global economy trying to turn itself back on after the pandemic lockdown. This is in contrast to many, such as former Treasury Secretary Lawrence Summers, who have been warning for months that inflation could be spiraling out of control.
However, Powell is largely seen as less pigeonholed than Brainard, and Biden feels a political pinch, which could tilt the balance in Powell’s favor.
relationship with Congress
Another factor in Powell’s favor is that at a time when the president’s relationship with Republicans in Congress is strained, the current president’s rapport with members on both sides of the aisle.
“Within Congress, Powell has built up a huge amount of credibility with both Republican and Democrat parties,” said Christopher Russo, a postgraduate research fellow at George Mason University’s Mercatus Center.
“In the pandemic, the Fed adopted a flexible average inflation target, which means they are going to drive inflation above target where it has gone below target, and Powell went on to explain the importance of that policy to skeptics. A lot of work has been done. Congress,” Rousseau told VOA.
He continued: “So, as we approach the current times where inflation is running much higher than the target, I think Powell’s credibility will be a real asset here.”
Most experts have always considered Powell’s reappointment as president more likely than his replacement, especially opening up the vice president’s job to banking supervision, and keeping Brainard there from the Warren wing of the president’s party. can be partially pacified.
Since the inflation numbers were announced on Wednesday, Powell’s chances of reappointment have risen from 71% to 76%, as of Friday afternoon on political betting website PredictIt.
“I think rising and more frequent inflation makes its politics more complicated,” Hamrick said. Bankrate.com, “And so what could have been seen as a competition six to 12 months ago has diminished.”