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Biden works balancing act on Federal Reserve

China Daily Global | Updated: 2021-11-24 09:54

US President Joe Biden listens as Jerome Powell, his pick for a second four-year term as Federal Reserve chair, speaks at the White House in Washington on Monday. [JIM WATSON/AGENCE FRANCE-PRESSE]

Retaining Powell, US leader pacifies rivals in bet on faith in rising economy

WASHINGTON-By picking Jerome Powell to stay on as chair of the powerful Federal Reserve, US President Joe Biden is trying to navigate hazardous crosscurrents between economic and political forces.

Monday's announcement frustrated some liberal Democrats who see Powell as too weak on financial regulation and climate change. It drew praise from several Republican senators whose votes will be needed to get him confirmed in the evenly split Senate.

But the underlying issue is whether the Fed's often subtle messages and changes in interest rates can translate to a renewed sense of optimism by voters about the economy.

Biden's goals are easy to describe but difficult to achieve, The Associated Press commented.

He needs to tamp down inflation-the rising prices that have people in the United States so upset-but not so much that it suffocates a strong burst of hiring. He wants to forge bipartisan agreements, though not at the expense of his policy vision. He must put Democrats in the best position to compete in the 2022 midterm elections, yet his coalition is so diverse that it naturally invites infighting that can turn off voters.

Biden chose to nominate Powell to a second term in the belief that the 68-year-old's political independence and experience during the pandemic will give the public a sense of security. He balanced the choice politically by announcing that he wanted to elevate Fed Governor Lael Brainard to vice-chair, a choice that could comfort some of the president's progressive Democratic critics.

Harvard University economist Jason Furman, who served as top economic adviser during Barack Obama's presidency, said the political message in Powell's pick was about "continuity and bipartisanship and the importance of institutions".

During his presidency, Donald Trump initially elevated Powell to Fed chair in 2018, but the Republican president quickly turned spiteful and tried on Twitter to bully the Fed into cutting rates and juicing economic growth. Powell stood firm and exhibited an independence based on data that made him credible with Biden.

At the pandemic's outset, when the Trump administration seemed in denial about its economic consequences, Powell responded by slashing interest rates and purchasing bonds.

High inflation

The Fed has held rates at near zero even after the enactment of Biden's $1.9 trillion coronavirus relief package. That choice ricocheted through the economy as the unemployment rate quickly fell to a healthy 4.6 percent, yet the extent of government support also amplified supply chain challenges and pushed inflation to a 31-year high.

Biden was quick to emphasize on Monday that the strength of the economy should make it easier for the Fed to tackle inflation, which has become one of his top political vulnerabilities as consumers pay more for gasoline, cars, housing and other items.

Biden will need Republican backing because he faces dissent among Democrats over Powell from some who see him as lax on regulatory issues, the economic threats from climate change and the policing of Fed officials' stock and bond portfolios.

Senator Elizabeth Warren tweeted that she will oppose Powell because of what she deems as "failures on regulation, climate, and ethics". Senator Sheldon Whitehouse and Jeff Merkley issued a joint statement against Powell under the argument that the Fed should do more to protect against and adapt to the economic havoc coming from climate change.

Yet for all the economic power concentrated at the Fed and the White House, Biden's fate will ultimately depend upon the individual choices of businesses and consumers who determine the direction of the US economy. Their hopes, fears and choices will be critical as to whether the solid growth out of the pandemic is sustained and whether inflation returns closer to the Fed's 2 percent annual target.

"The economy is not run by the president," said Jonathan Golub, chief US equity strategist at Credit Suisse Securities. "It's average, everyday Americans who make the economy run."

Agencies Via Xinhua

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