Senate confirms Powell for second term as Fed fights inflation

WASHINGTON (AP) — The Senate Thursday confirmed Jerome Powell to a second four-year term as chairman of the Federal Reserve, giving bipartisan support to Powell’s efforts to curb the highest inflation rate in four decades.

The 80-19 vote reflected broad support in Congress for the Fed’s drive to fight rising prices through a series of sharp rate hikes that could last well into the next year. The Fed’s goal is to slow down borrowing and spending enough to ease inflationary pressures.

Since February, when his first term expired, Powell led the central bank in a temporary capacity.

He faces a difficult and risky task to curb inflation without weakening the economy so much as to trigger a recession. The labor market remains robust and has been amplified to a point that Powell says is “unsustainably hot” and contributes to an overheating economy.

Rising prices across the economy have hurt millions of Americans whose wages cannot keep up with the cost of living necessities such as food, gas and rent. And the prospect of steadily higher interest rates has upset financial markets, with stock prices plummeting for weeks.

In an interview with NPR’s “Marketplace” later Thursday, Powell acknowledged that the Fed’s ability successfully slowing the economy and reducing inflation without triggering a recession – a so-called “soft landing” – depends on “factors beyond our control”, such as the Russian invasion of Ukraine and the slowing of the growth in China.

That contrasts with earlier, more confident statements by Powell, including last week when he said “we have a good chance of a soft or soft landing.”

Powell’s support in the Senate Thursday was roughly in line with what he received four years ago after he was first nominated as president by President Donald Trump. At the time, the Senate voted 84-13 to confirm him.

To some extent, Powell’s support in Congress reflects the blame most Republicans attribute to President Joe Biden’s $1.9 trillion COVID aid package — rather than the Fed’s ultra-low interest rates — for causing high inflation. Many economists, including those who have served in previous Democratic administrations, agree that Biden’s legislation has played a role in accelerating prices.

Powell’s confirmation comes as many economists have sharply criticized the Fed for waiting too long to react to worsening inflation, making his job more difficult and risky.

Prices rose for the first time a year ago, after Americans ramped up spending after the vaccines were administered and COVID restrictions began to ease. Strong demand left many companies unprepared and short of inventories, driving up prices for goods such as cars, furniture and appliances – if consumers could find them at all. High inflation has since spread to most of the rest of the economy, including rents and other services such as hotel rooms, restaurant meals and medical care.

For months, Powell reiterated his view that inflation was only “transient” and would soon ease as supply bottlenecks were resolved. The Fed continued to buy Treasury and mortgage bonds until March, when prices were up 8.5%. compared to a year earlier. The bond purchases were intended to keep interest rates on long-term loans low. It has only been two months since the central bank raised its benchmark rate from near zero to a range of 0.25% to 0.5%.

“They could have phased out[bond purchases]earlier and started tightening monetary policy earlier, especially when this strong data came in,” said Kristin Forbes, an economist at MIT’s Sloan School of Management and a former member of The Bank of England’s Monetary Policy Committee.

Powell and other officials have since acknowledged that the Fed could have started rolling back its stimulus sooner. However, they suggest that most economists outside the Fed also initially believed that high inflation would be short-lived.

“In hindsight, says we should have moved sooner,” Powell acknowledged during a Senate hearing in early March.

The Fed’s view that inflation was primarily a reflection of supply shocks that would soon subside “turned out to be wrong,” Powell admitted, “maybe not wrong conceptually, but it just takes so much longer for the supply side to heal than we thought. ”

Christopher Waller, a member of the Fed’s board of directors, said last week that the central bank was partially thrown off the map by reports from last August and September suggesting the labor market was weakening. Recruiting more slowly would have made it more difficult for workers to get significant pay increases and thus would have helped keep inflation in check.

But those hiring reports, and the three that followed, were later revised upwards to total about 1.5 million jobs, Waller said, highlighting the extraordinarily high demand for labor that has also driven wages soaring.

“If we knew then what we know now, I[Fed policymakers]think the tapering[of bond purchases]and interest rates would have increased sooner,” Waller said Friday. “But nobody knew, and that’s the nature of making monetary policy in real time.”

The Senate has already confirmed Biden’s three other Fed board picks: Lael Brainardwho is now Vice-President, and Lisa Cook and Philip Jefferson† All three will vote on the central bank’s interest rate decisions and financial regulatory policies.

Cook and Jefferson are both black, meaning the Fed board now has two black members for the first time in its 108-year history. Cook, a professor of economics and international relations at the state of Michigan, will become the first black woman to serve on the board.

Biden has also nominated Michael Barr, a former Treasury Department official who helped draft the 2010 Dodd-Frank Financial Regulation Act, as the Fed’s chief banking regulator and the last vacant seat on the seven-member board. to fill. sen. Sherrod Brown, the Ohio Democrat who chairs the Senate Banking Committee, said Thursday that his committee will hold a hearing on Barr’s nomination next week.

In the past, politicians have often objected to higher interest rates for fear it would cause job losses. The chronically high inflation of the 1970s has been attributed in part to political pressures that led the Fed to refrain from steep rate hikes under Presidents Lyndon Johnson and Richard Nixon.

Powell himself faced harsh criticism from Trump when the Fed raised interest rates in 2017 and 2018 after the unemployment rate hit a half-century low of 3.5%. Powell reversed some of those hikes in 2019 after the economy slowed in the wake of Trump’s tariffs on Chinese imports.

This week, Biden said that while he would respect the Fed’s independence, he supported its efforts to raise borrowing rates, which has already caused the cost of mortgages, auto loans and business loans to rise.

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