In his second term, Jerome Powell will confront two broad challenges: how to quell inflation without harming the economy and how to reorient the Fed on concerns from climate change to digital currencies
OF ALL AMERICA’S many job openings, this was the most important. On November 22nd President Joe Biden announced that he would renominate Jerome Powell as chairman of the Federal Reserve when his current term expires in February. Investors and analysts had long expected the reappointment, with initial reports suggesting that it would come nearly three months ago. The delay reflects a worrying pattern of indecision and gaps in personnel appointments by the White House.
That, however, is more complicated than it sounds. Before raising interest rates, Mr Powell has all but committed himself to bringing the Fed’s quantitative easing to a halt—that is, halting its monthly purchases of bonds that helped reinvigorate the economy over the past 20 months. The Fed is starting to reduce, or taper, its asset purchases this month, but it is only on track to stop them altogether by June 2022.
Yet it would take courage for Mr Powell to do this. Scarred by its first experience with tapering back in 2013, when global markets panicked at the mere hint of it, the Fed has carefully telegraphed its moves to investors this time around. “If suddenly you have a new taper schedule and, critically, it has clear implications for rates, you are rolling the dice as to the market reaction,” says Krishna Guha of Evercore ISI, an advisory firm.
Under Mr Powell the Fed has slowly chipped away at some of the rules erected to make the banking system safer after the global financial crisis of 2007-09. This deregulation earned Mr Powell the enmity of left-wing Democratic politicians, including Elizabeth Warren, a senator, who called him a “dangerous man”. Ms Brainard, by contrast, regularly voted against these relaxations.
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