Growth, jobs and inflation clash in Biden Fed choice
U.S. President Joe Biden's nominee as the next chair of the Federal Reserve, expected as soon as this week, will inherit an economy headed for the fastest annual growth in a generation with wage increases flowing to the lowest-paid workers, strong hiring, and household bank accounts flush with cash.
It's a choice both Biden and the Fed hoped could be avoided in a drive to push job growth further and deeper into the economy, on the expectation inflation would behave roughly the same as it did before the pandemic. It hasn't.
INFLATION A 'VERY BIG CONCERN'
Biden said Tuesday he would make a decision on the Fed in around four days. Powell's current term ends in February and whether Biden chooses him or Brainard - both have been interviewed - the nominee will need to go through a confirmation hearing and vote in a closely divided Senate.
But a process that began as a somewhat clear-cut choice - stick with the Republican Powell for continuity and bipartisanship or tap the Democrat Brainard to reward supporters and pursue a broader remake of the central bank - has turned trickier.
Both are practiced central bankers who have worked together for years and shared in remaking Fed policy to put more emphasis on jobs and allow some higher inflation to do so. Both will have to wrestle in coming months with the same dilemma of how far to let those inflation risks run before taking action.
"No matter how this comes out there would be a lot of continuity in Fed policy. Both of these players have long track records," St. Louis Federal Reserve President James Bullard said Tuesday on Bloomberg Television.
But politically the landscape for Biden has changed from one where the Fed could keep its prime focus on jobs to one where the fortunes of the president and his party may need a dose of inflation fighting as well.
The Biden administration, like many at the central bank, also believes the current run of inflation is a temporary byproduct of ramping up the global economy after the pandemic.
But a Biden adviser said fears about inflation and the economy in general were the main reason for Biden’s decline in the polls in recent months - and that it was incumbent on Democrats to show they understand the issue and are trying to solve it.
Brainard, at the margin, may be the more "dovish" choice, willing to show more patience in raising rates. Still, she's also a Phd economist schooled in the downside of letting inflation spiral and unlikely to let it happen on her watch.
Powell, a private equity lawyer but convert to the strategy of pushing broad employment gains, may have an easier road to confirmation, with announced support already among Senate Republicans and Democrats. The president himself has begun putting inflation more center stage.
Reference: Reuters
Read More: https://www.reuters.com/business/growth-jobs-inflation-clash-biden-fed-choice-2021-11-17/
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