Let the Inflation Battle Begin

Image: Marriner S. Eccles Federal Reserve Board Building. Source: traveler1116 / iStockphoto

Four More Years For Chairman Powell Sets The Stage To Fight Inflation

The Biden Administration had indicated that it would decide on the next Fed Chair by Labor Day. With Thanksgiving this week, the decision was long overdue. On Monday, November 22, President Biden decided to reappoint the sitting Chair for another term. Chair Jerome Powell’s current term ends in February 2022, and he was one of the two finalists for the position, along with economist Lael Brainard. She has served on the Federal Reserve Board of Governors since 2014.

Chair Powell is a Republican, while Governor Brainard is a Democrat. While Powell has steered the US central bank through the pandemic with an unprecedented dovish approach to monetary policy, inflation continues to rise, and the central bank has started tapering quantitative easing.

Moderates and Wall Street favored another term for the current Chair

• Many market participants are concerned about rising inflation. Powell’s recent comments and actions signal the central bank is prepared to address the economic condition.
• Treasury Secretary Janet Powell had voiced support for a second term.
• Markets reflected a more aggressive approach to battling inflation after President Biden appointed Powell for another term. Gold sank, bonds edged lower, and the dollar index and stocks rallied on the prospects for higher interest rates.

Governor Brainard will be the Vice Chair

• President Biden will promote economist Lael Brainard to be Vice Chair of the US central bank.
• The Vice Chair takes a leadership role in supervision the US banking system.

The administration opted for continuity

• Inflation is a critical issue facing the administration. While monetary policy is turning more hawkish to address the economic condition, fiscal policy stimulus continues to feed the inflationary fire.
• The administration made a bipartisan choice in reappointing Chair Powell.

Markets took the decision in stride on Monday with a slight acknowledgment that the central bank will continue QE tapering and move toward interest rate hikes in late 2022. Chair Powell and Governor Brainard have worked closely over the past four years, making their policy paths similar.  Both economists believe the central bank’s mandate is stable prices and full employment.

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Equities News Contributor: Tradier Inc

Source: Equities News