Jerome Powell, the man Biden has tasked with cooling inflation | Economy

William McChesney Martin, who ran the Federal Reserve (Fed) in the 1950s, used to say that his role was to remove drinks just as the party started to get lively. That is, to raise interest rates as soon as there are signs of worrying inflation. Jerome Powell, reconfirmed this week by President Joe Biden at the head of the US central bank pending Senate approval, will also have to raise the price of money to tame skyrocketing inflation (6.2% in October, the highest rate in three decades). If the Senate supports you, Jay Powell, appointed by Donald Trump in 2017 and whose suitability is therefore doubtful to some Democrats, will be the Killjoy in the open bar of the economic recovery after the pandemic.

It was Trump who broke the unwritten rule of reconfirming in office to the head of the Fed that each new tenant of the White House was found, regardless of their political affiliation. Trump appointed his co-religionist Powell instead of revalidating Democrat Janet Yellen, current Secretary of the Treasury. Betting on the Republican who has put the economy on track during the uncertain journey of the COVID, Biden resumes the old habit. With a massive asset purchase program, at the rate of $ 120 billion a month, and tying the price of money around 0% since March 2020, Powell has garnered bipartisan applause.

But some Democrats, those of the more progressive faction, are suspicious of his management, fearful of finding themselves at the expense of a hawk. The gradual withdrawal of stimuli, starting this month, will be followed by the rise in interest rates, which some experts suggest could occur three times next year instead of the usual two. A delicate moment in the Fed’s monetary policy cycle.

In the pair proposed by Biden, the vice president of the Fed will be Democrat Lael Brainard, in favor of stricter banking regulation and the favorite candidate of progressives to lead the entity. The president’s bet on Powell is largely explained by what may be his number two, and vice versa; a possible balance to save the Senate process and satisfy the critics. “Biden took the path of least resistance when nominating Powell. By dismissing Brainard for the top job, he theoretically avoids a Senate confirmation process from which he could get bruised, “says Will Denyer of Gavekal Research. Approval requires 60 votes out of 100, and the two benches are tied for seats.

“Choosing Powell is sensible, as he is considered an iron hand in a silk glove. In partisan politics in the US, it helps that Barack Obama took him to the Fed board and Trump promoted him to the presidency. Right now, it would have been a daring political and economic decision to replace it: the possibility of an accident increases as the Fed tries to control high inflation while keeping the economy going, ”adds Denyer. The diplomatic firmness of his disposition is corroborated by his reputation as a man of consensus and at the same time decisive. It will have to be extremely so to achieve the three goals that Biden has set for him: keeping inflation low, prices stable and employment rising.

The son of a lawyer and a mathematician, Powell (Washington, 68 years old), who trained with the Jesuits and whose grandfather was dean of the law school of the Catholic University of America, received his doctorate in law in Georgetown in 1979 after doing it in Politics at Princeton four years earlier. It was then that he had his first political experience as a legal assistant to Republican Senator Richard Schweiker, who tried unsuccessfully to run for the White House in the 1976 primaries as a peer to Ronald Reagan. After that episode he dedicated himself to the world of finance, as an investment banker, with a brief foray into the Administration as undersecretary of the Treasury under George Bush. dad, in 1992. After joining the Fed’s board of governors in 2012, in February 2018 he was confirmed by the Senate as the institution’s 16th president.

David Page, head of macro research at fund manager AXA Investment Managers, credits Powell with the express US recovery. [de la Fed] it has been very successful and is one of the factors that explains why the US will regain its pre-pandemic level in a short time. Now Powell faces the challenge of the withdrawal of stimuli, but it is not the first: before the pandemic, he also experienced a considerable challenge in the last years of the Trump presidency, with criticism and pressure from the president. Jay Powell got through that phase very well. And the Fed faced political pressures that in other economies could have significantly weakened the institution. ” Page refers to a few months of nervousness in the markets, between 2018 and 2019, when Trump came to consult his advisers about the possibility of firing him, after affirming on Twitter that Powell was “the only problem” in the US economy. The aforementioned responded to the rudeness by assuring that he would not resign even if the president asked him to.

Powell’s unanimity is in stark contrast to criticism from the left-wing Democrats. Or the disqualifications, like the one that Senator Elizabeth Warren, who has already announced her vote against, has dedicated to him: “A dangerous man.” “Changes in banking regulation have drawn criticism from Democrats further to the left, but for now that is not a major problem, as financial stability has improved significantly,” continues Page. Warren also voted against Powell in his confirmation process in a Senate committee in 2017. The result of that process was a boost for Powell (22 votes in favor), but it exposed Warren, the only opponent.

Faced with negative criticism, the analyst recalls how decisive Biden’s bet has been the support given to Powell by Janet Yellen. “Who better than the Secretary of the Treasury to value him, not only as the head of the country’s economy, but also because he was president of the Fed and knows the roles, responsibilities and functions of that position. Their backing weighed heavily ”on Biden’s decision, adds the AXA analyst.

Page also appreciates the speed with which Powell acted to settle the scandal caused by the stock trading of two regional presidents in 2020, a conflict of interest that tarnished the institution’s credibility. “The presidents [implicados] are no longer in office, and a review is in progress [del código ético] in the longer term ”.

A changing conjuncture – new variants of the virus, great global traffic jam, accelerating consumption and millions of job vacancies: distortions inherited from the pandemic – may complicate Powell’s roadmap for the next four years. “The biggest challenges it will face will be the ones we cannot foresee. But the Fed under Powell has shown that it can respond fairly flexibly to extreme elements. I believe that another challenge will be the formulation of policies in the face of evidence of structural changes, for example, in the labor market ”, underlines Page, who points out another destabilizing factor: changes in consumer habits, with a higher demand than before. , sometimes higher than a supply suffocated by bottlenecks, with consequences for inflation at least in the next two quarters. Especially if Powell stands firm in his belief that the economy still has room to grow and inflation will wane.

The minutes of the last Fed meeting confirmed that the “temporary” scenario continues to be the main working hypothesis, but also that confidence in this possibility has diminished since the summer. Something that the first Fed official in 40 years who has not a degree in Economics, stoic in character as a good cyclist – he has even pedaled to go to work – is more aware than ever: if it was difficult to navigate the stormy pandemic, it will be. also to prevent the great locomotive that is the US economy from taking too much speed and derailing.