Sequel

Biden picks Powell for a second term as Fed chair, hoping to fight surging prices

Tuesday, November 23, 2021 by Robinhood Snacks | Disclosures
Sticking to the chair [Westend61 via Getty Images]

Sticking to the chair [Westend61 via Getty Images]

Powell reloaded… Fed Chair Jerome Powell has been running America’s central bank since 2018. He helped the economy rebound from a pandemic plunge with heavy stimulus medicine. Think: pumping trillions into the money supply through $120B monthly bond purchases. Now stocks are near record highs, but inflation is soaring — and Powell may have to clean up the aftermath.

  • After months of deliberation, Biden said he’d appoint Powell to another four-year term. The Senate is expected to confirm Biden’s choice soon.
  • Power to the Powell: For months, investors had wondered whether Biden would nominate pro-business Powell or Fed governor Lael Brainard, who’s known to be tougher on banks (Biden said he’d appoint her to the No. 2 spot).

If it ain’t broke… don’t nix it. For Biden, the stakes of this nomination are high. US inflation hit a 31-year high last month. Half of voters blame Biden for surging prices of staples, from gas to bacon. Biden will rely on Powell for help keeping prices down: The Fed can raise interest rates to cool spending and keep prices in check. About that…

  • This month the Fed approved plans to start scaling back its economy-boosting bond-buying program.
  • It announced it was planning to buy $15B less in bonds — and end all bond purchases by June.
THE TAKEAWAY

There’s a trade-off… between inflation and growth. Keeping inflation in check could mean limiting the cash that flows out of banks. It could mean higher interest rates on loans, from mortgages to credit cards — which could depress spending. The sweet spot: keeping inflation under control while maintaining economic growth. Fed officials don’t want to raise interest rates until at least July, after they’ve ended their bond-buying spree. But if prices keep soaring, they may have to move more quickly.