Federal Reserve Chairman Jerome Powell is poised to keep his title for another four years following President Joe Biden’s announcement that he would nominate Powell for a second term on Monday.
Biden also announced his pick for vice chair — current Fed governor Lael Brainard — who faces a rockier path to confirmation, and is also viewed by analysts as potentially more dovish on inflation.
If confirmed by the Senate, what would Biden’s Fed picks mean for Americans’ paychecks, mortgages and stock portfolios? On the latter issue, some analysts and Powell supporters say the stock market has reacted positively to Powell’s steady hand and that his tenure has provided much-needed stability during these uncertain times.
The two nominations come at a crucial time. Inflation is at its highest level in 31 years. Americans are paying more for anything from gasoline to groceries — which increased by 6.1% and 1% last month compared with September, respectively, and are up nearly 50% and 5.4% since last October.
“‘The Fed that had been providing accommodation is slowly starting to withdraw it, and that portends heightened stock market volatility, more modest real estate returns, and higher borrowing costs.’”
— Greg McBride, chief financial analyst at Bankrate.com
In separate remarks delivered alongside Biden on Monday, Powell, 68, and Brainard, 59, said they’re committed to using the Fed’s tools to help lower inflation and alleviate the toll it has taken, especially on working-class Americans.
Many analysts and economists see Powell’s renomination as a positive for the stock market. “It provides continuity at a critical time,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, told MarketWatch.
Regardless of whom Biden had nominated, the Fed was inevitably due for policy changes, said Greg McBride, chief financial analyst at Bankrate.com.
“The Fed that had been providing accommodation is slowly starting to withdraw it, and that portends heightened stock-market volatility, more modest real-estate returns and higher borrowing costs,” McBride told MarketWatch.
“Powell’s renomination also likely means that the Fed will continue to distance itself from regulating digital currencies like bitcoin, which the central-bank chief has said he would not favor restricting.”
Even though Powell, himself a Republican, has been criticized by predominantly Republican lawmakers for not doing enough to curb inflation, it’s likely that “a Powell-led Fed will not be willing to tolerate the persistent inflation overshoot we expect,” said Kevin Cummins, chief U.S. economist at NatWest Markets.
Powell’s renomination also likely means that the Fed will continue to distance itself from regulating digital currencies like bitcoin
which Powell has said he does not favor restricting.
Sen. Elizabeth Warren, a liberal Democrat, had made no secret of her wish to see Powell replaced, assailing him in public hearings for a perceived light touch on the regulation of commercial banks. (Other left-of-center Democrats have criticized Powell as not positioning the Fed to combat climate change and its effects.)
Brainard, however, could push the Fed to “take a tougher stance on regulatory matters,” said McBride, adding that “what form that takes remains to be seen.”
While Powell is considered a political moderate, Brainard, who could serve as his second-in-command, is the only registered Democrat on the Board of Governors at the Fed.
She has been a strong proponent of increasing regulatory oversight on banks to monitor the risks they take on and prevent potential fallouts that could impact the overall economy.
“The Federal Reserve under Powell’s stewardship previously announced it will begin to wind-down a bond-buying program designed to prop up the economy during the pandemic.”
“I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before,” Biden said in a statement on Monday.
“Together, they also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system,” he added.
Earlier this month, the Federal Reserve — under Powell’s stewardship — announced that it will begin to wind down a bond-buying program designed to prop up the U.S. economy during the pandemic.
Bond buying lowers long-term interest rates and has been a signal to markets that the Fed isn’t going to raise short-term target interest rates.
The Fed started buying trillions of dollars’ worth of bonds right when the pandemic struck in early 2020, eventually slowing the pace to $120 billion per month in June 2020. The central bank’s balance sheet has topped $8 trillion.
Last December, the Fed said it would continue to buy bonds until the economy had made “substantial” progress towards its goal of stable 2% inflation and a healthy labor market.
On Nov. 3, however, the Fed said it would reduce the pace of purchases by $15 billion per month in November and December and said it judges that “similar reductions in the pace of net asset purchases will likely be appropriate each month.”
The central bank stressed tapering is not on a preset path. The FOMC “is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
The eight-month tapering timeline gives the Fed time to see whether inflation pressures subside.
Greg Robb contributed to this report.