(Original title: Powell is expected to be re-elected as the chairman of the Fed. The Fed’s monetary policy will be stable and change)
The current Fed Chairman Powell was given a chance to be re-elected. On the morning of November 22, US Eastern Time, US President Biden announced that Jerome Powell (Jerome Powell) was nominated for re-election as Fed Chairman, and current Federal Reserve Director Lael Brainard was nominated as Fed Vice Chairman.
Biden said in a statement, “As I said before, we cannot be satisfied with the US economy returning to its pre-coronavirus pandemic state, but to make the US economy better on this basis. I believe Powell And Brainard’s continued work on low inflation, stable prices, and full employment will make the U.S. economy stronger.”
Many economists believe that Biden’s decision is to extend the continuity of the Fed’s monetary policy. However, if Powell succeeds in getting his second term, he will need to further optimize the Fed’s monetary policy to be alert to the risks of climate change to the financial market.
The Fed’s “anti-epidemic” achievements and independence are recognized
In making this decision, Biden praised Powell and the Fed’s stimulus plan during the new crown virus pandemic. In 2020, the new crown epidemic hit the U.S. economy severely. In response to the economic recession caused by the new crown epidemic, the Federal Reserve has continuously introduced monetary policy tools such as reducing the target range of the federal funds rate to near zero and unlimited quantitative easing in a short period of time to help the US economy quickly recover from the recession caused by the epidemic. This series of stimulus plans increased the Federal Reserve’s holdings of US Treasury bonds and mortgage-backed securities by more than $4 trillion.
Economists believe that the Fed’s rapid and large-scale response has stabilized the financial market. Sarah Hewin, chief economist for Europe and the United States of Standard Chartered Bank, told the 21st Century Business Herald reporter that Powell did his job well under very difficult circumstances last year. In the face of the economic crisis triggered by the pandemic, the Fed quickly adjusted to an ultra-loose monetary policy to continue to support the economy.
Robert Dent, a senior economist in the United States at Nomura, also told the 21st Century Business Herald reporter that Powell performed very well in his first term. “In the context of the new crown virus pandemic, Powell has to deal with extremely difficult situations. The Fed has done a good job in using various monetary policy tools, such as rapid interest rate hikes, increased asset purchases, and deployment of a variety of different credits. Tools, this is an unprecedented stimulus to the U.S. economy.”
Dent emphasized that Powell deserves more praise because he has ensured that the U.S. economy avoids being hit by the epidemic too much.
The White House stated in a statement that the US economic recovery is “a testament to the success of the president’s economic agenda, and also a testament to the decisive actions taken by Chairman Powell and the Federal Reserve to reduce the impact of the epidemic and bring the U.S. economy back on track.”
U.S. Treasury Secretary Yellen said, “In the past few years, Powell has provided the Fed with strong leadership to effectively respond to unexpected economic recessions and financial challenges. I am very happy that our economy will continue to benefit from his leadership.”
In addition to effectively responding to the economic recession, Powell’s efforts to maintain the independence of the Fed are also well-recognized. During his first term, Trump frequently criticized Powell on social media and media interviews, and even studied how to fire Powell on the grounds that the Fed’s interest rate hike was not conducive to the development of the U.S. economy. However, Powell withstood the pressure and was finally eligible for re-election.
Hewin pointed out to reporters that the independence of the Federal Reserve was maintained during Powell’s first term. “I think Powell was successful in maintaining independence and consolidating independence through a clear set of policy goals. At the same time, they clearly communicated these goals to the market.”
The White House concluded that “Chairman Powell has provided stable leadership during an unprecedented and challenging period, including the worst economic recession in modern history and the attacks on the independence of the Federal Reserve from all walks of life.”
Biden also said, “I respect Powell’s independence. In the face of the current moment when the potential of the US economy and uncertainty coexist, we need the stability and independence of the Federal Reserve.”
Dent emphasized to reporters that Powell has always been at the forefront of the Fed’s policy evaluation because it reshaped a very strong job market before the outbreak of the new crown epidemic. To a large extent, he helped form the Fed’s goal of emphasizing the importance of maximizing employment. “He has a very close relationship with members of the U.S. Congress and has been committed to ensuring that the Fed’s efforts in transparency and communication have continued to improve over the past few years.”
Monetary policy will be stable and change in the future
According to the White House statement, Biden also nominated the current Federal Reserve Brainard to replace Richard Clarida as the Fed Vice Chairman. Clarida’s term will end on January 31, 2022.
Analysis believes that Biden’s move will ensure the continuity of the Fed’s core policies.
Dent pointed out to reporters that Powell and Brainard have very similar views, so the Fed under the leadership of the two will not have much difference in policy.
Adam Posen, director of the Peterson Institute for International Economics in the United States, also pointed out that “they are all veterans and mature civil servants, and there is no difference in monetary policy between them.”
Mark Zandi, chief economist at Moody’s Analytics, believes that “the president’s choice is to maintain the status quo of monetary policy and financial regulation. The Fed will slowly but steadily withdraw from the ultra-loose monetary policy.”
Independent Advisor Alliance Chief Investment Officer Chris Zaccarelli pointed out that at this critical moment, this decision maintains the continuity of the Federal Reserve’s monetary policy.
Mike Feroli, chief U.S. analyst at JPMorgan Chase, believes, “Under Powell’s leadership, the Fed has placed more emphasis on keeping the economy operating at full employment. This is a goal advocated by progressive economists for a long time, and this goal may be similar to Biden’s Consistent with the agenda.”
The two monetary policy veterans and partners in the Fed’s policy reform will continue to consolidate the results of the Fed’s “transition”. Since Powell took office, the focus of the Fed’s policy has shifted from the price stability established about 40 years ago to the maximization of employment.
In a speech to the nominees at the White House, Biden said, “Our economy has changed from a stagnant state to a state that leads the world’s economic growth.”
Biden pointed out, “Powell’s stable leadership has soothed panic markets, and his firm belief in monetary policy to support full employment has made me believe that Powell is the right person to help the U.S. economy tide over the difficulties.”
He added that the United States is still dealing with the impact of the new crown virus pandemic, such as rising inflation, but the United States has made “tremendous progress”, including adding nearly 6 million jobs since he was sworn in, and increasing Wages-these positive signs indicate that the Fed’s work is fruitful.
Although Biden chose Powell for sustainability, there are still signs that the Fed’s policy will be further optimized. Bankrate.com chief financial analyst Greg McBride pointed out that no matter who becomes the chairman of the Fed, the Fed will inevitably make some policy adjustments.
The Fed’s updated framework goal is to maximize employment rather than full employment. This is a small but important adjustment aimed at creating a stronger labor market for low-income Americans and minorities.
Brainard said on November 22 that her focus at the Federal Reserve will be to focus on working-class Americans, which means that “will maintain employment and wage levels while reducing inflation.”
In addition, researchers at the Federal Reserve pay more and more attention to and study the impact of climate change on the financial system.
Biden revealed that Powell “made it clear to me that the top priority is to accelerate the Federal Reserve’s efforts to address and mitigate the risks that climate change brings to our financial system and economy.”
However, Powell’s challenges are far more than that. The Fed is facing high inflation in the United States. Since September 2020, the Fed’s official policy has been to keep the average inflation rate at around 2% while considering maximizing employment, but prices have always been much higher than this level.
Powell insisted that once the factors related to the new coronavirus pandemic return to normal, inflation will cool down. But recent data has raised questions about the so-called average inflation target. Concurrent with inflation is the rapid recovery of the US economy. The unemployment rate has fallen from 14.8% at the peak of confirmed cases of new coronary pneumonia to the current 4.6%.
Powell emphasized on November 22, “We know that high inflation will bring losses to American families, especially those families that cannot afford the rising prices of necessities such as food, housing, and transportation. Therefore, we use our tools to support the economy and strength. The labor market and prevent high inflation from becoming entrenched.”
At present, the market is paying close attention to the Fed’s plan to withdraw from QE. The Federal Reserve announced after the conclusion of the November interest rate meeting that it would begin to reduce bond purchases, reducing about 15 billion US dollars a month, and is expected to end its bond purchase plan in late spring or early summer of 2022.
However, the end of debt reduction does not mean an increase in interest rates. So far, most Fed officials have stated that they will not consider raising interest rates, at least not until the end of the asset purchase reduction plan. However, the market currently hopes that the Fed can raise interest rates sooner and has already digested the expectation of the first interest rate hike in June 2022.
In an interview with reporters, Dent predicted that the Fed will start raising interest rates no earlier than December next year. If interest rates are raised twice a year, then the nominal interest rate will not reach neutrality until 2025 or 2026. In addition, the Fed needs time to figure out how to normalize its balance sheet.
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