The Senate on Thursday confirmed the appointment of Jerome Powell to a second four-year term as Federal Reserve Chairman, giving bipartisan support to Powell’s high-stakes effort to curb the highest rate of inflation in four decades.
The 80-19 vote reflected broad support in Congress for the Fed’s campaign to combat rising prices through a series of sharp rate increases. It could extend to next year. The Fed’s goal is to slow enough borrowing and spending to ease inflationary pressures.
Since February, when his first term expired, Powell has been temporarily leading the central bank.
He faces the difficult and dangerous task of trying to cool inflation without weakening the economy as much as causing a recession. The job market is still going strong It is boosted to the point where Powell said it is “unsustainably hot” and contributes to an overheating economy.
Rising prices across the economy have caused millions of Americans to suffer whose wages do not match the cost of necessities such as food, gas and rent. The prospect of steadily rising interest rates destabilized financial markets, with stock prices plummeting for weeks.
In an interview with NPR’s “Marketplace” later Thursday, Powell acknowledged the Fed’s ability to Success in slowing the economy and reducing inflation without causing a recession – a so-called “soft landing” – depends on “factors we don’t control”, such as Russia’s invasion of Ukraine and slowing growth in China.
This contrasts with Powell’s earlier, more confident comments, including just last week when he said, “We have a good chance of getting a soft or calm landing.”
Powell’s support Thursday in the Senate was roughly in line with what he received four years ago, after President Donald Trump first nominated him as president. At the time, the Senate voted 84 to 13 to confirm it.
To some extent, Powell’s support in Congress reflects the blame most Republicans place on President Joe Biden’s $1.9 trillion COVID relief package — rather than the Fed’s ultra-low rates — for causing soaring inflation. Many economists, including those who 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 been highly critical of the Federal Reserve To wait so long to respond to the exacerbation of inflation, making his task more difficult and more dangerous.
Prices rose for the first time a year ago, after Americans ramped up their spending once vaccines were given and COVID restrictions began to fall. The increase in demand has drawn in many unprepared companies and short supply, causing the prices of goods such as cars, furniture and appliances – if consumers can find them – to soar. Since then, high inflation has spread to most of the rest of the economy, including rents and other services such as hotel rooms, restaurant meals, and Medicare.
For several months, Powell reiterated his view that inflation was merely “transient” and would quickly ease when supply bottlenecks were resolved. The Fed continued to buy Treasuries and mortgages until March, when rates rose 8.5% compared to the previous year. The goal of buying bonds was to keep long-term loan rates low. Just two months ago, the central bank raised the benchmark interest rate from nearly zero to a range of 0.25% to 0.5%.
said Kristen 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 to roll back the stimulus earlier. However, they suggest that most economists outside the Federal Reserve initially also believed that higher inflation would be short-lived.
“Hierarchy says we should have acted sooner,” Powell admitted during a Senate hearing in early March.
Powell admitted that the Fed’s view that inflation mostly reflects supply shocks that will soon fade “turned out wrong,” “maybe not conceptually wrong, but it takes much longer for the supply side to recover than we thought.”
Christopher Waller, a Fed board member, said last week that the central bank was taken down in part by reports last August and September that the labor market was weakening. Slower hiring would have made it difficult for workers to secure large wage increases, and thus would have helped keep inflation in check.
Waller said the employment reports, and the three that followed, were subsequently revised upwards by about 1.5 million jobs, underlining the unusually high demand for labor that also sharply increased wages.
“If we had known what we know now, I think (Federal policy makers) would have been quick to reduce (bond purchases) and raise interest rates sooner,” Waller said on Friday. “But nobody knows, and that’s the nature of real-time monetary policy making.”
The Senate has already confirmed three of Biden’s other picks for the Fed’s Board of Governors: Lyle Brainardwho is now Vice President, Lisa Cook and Philip Jefferson. The three will vote on central bank decisions on interest rate and financial regulation policies.
Cook and Jefferson are both black, which means the Federal Reserve Board now has two black members for the first time in its 108-year history. Cook, professor of economics and international relations at Michigan State, will be the first black woman to serve on the board.
Biden also nominated Michael Barr, the former Treasury official who helped draft the 2010 Financial Regulation Act, Dodd Frank, to be the Federal Reserve’s largest banking regulator and to fill the last open place on the seven-member board of directors. Senator Sherrod Brown, the Ohio Democrat and chair of the Senate Banking Committee, said Thursday that his committee will hold a hearing on Barr’s nomination next week.
In the past, politicians often opposed higher interest rates for fear that they would cause job losses. The chronic high inflation of the 1970s was attributed, in part, to political pressure that drove the Federal Reserve to abandon sharp interest rate increases under Presidents Lyndon Johnson and Richard Nixon.
Powell himself came under heavy 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 gains in 2019, after the economy slowed in the wake of Trump’s tariffs on Chinese imports.
This week, Biden said that while he respects the Fed’s independence, he is backing its efforts to increase borrowing rates, which have already driven up the costs of mortgages, auto loans and commercial borrowing.