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Senate confirms Jerome Powell to second term as Federal Reserve chair

Much of his legacy will depend on whether the central bank can slow the economy without thrusting it into a recession

Federal Reserve Chairman Jerome Powell arrives for a meeting with Sen. John Cornyn, R-Texas, hours after being confirmed by the Senate to serve as the Federal Reserve Chair for a second term on May 12. (Jabin Botsford/The Washington Post)
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The Senate confirmed Federal Reserve Chair Jerome H. Powell to a second term leading the central bank on Thursday, as he faces the enormous task of slashing the highest inflation in 40 years without sending the country into a recession. The Senate supported Powell to another four year term by a vote of 80 to 19.

Powell, 69, first became chair of the central bank in 2018 after being tapped for the position by President Donald Trump. He was reappointed by President Biden and has broad support among Republicans and Democrats, who have praised his leadership since the pandemic seized the economy in spring 2020.

“Few institutions are more important to help steer our economy in the right direction, and to fight inflation, than the Fed,” Senate Majority Leader Charles E. Schumer (D-N.Y.) said Thursday on the Senate floor. “Chairman Powell presided as Fed chair during some of the most challenging moments in modern American history.”

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The challenge of getting the economy on more sustainable footing is a daunting one. The main tool for the Fed to slow down the economy is through interest rates, which work with blunt force. Higher rates make an array of loans costlier for households and businesses, and they can eventually slow consumer spending and business investment. The Fed bets that seven rate hikes this year will rein in inflation while recalibrating the job market so there is less demand for workers.

“The economy is strong, and is well positioned to handle tighter monetary policy,” Powell said at a news conference last week. “So, but I’ll say I do expect that this will be very challenging, it’s not going to be easy. And it may well depend, of course, on events that are not … under our control. But our job is to use our tools to try to achieve that outcome. And that’s what we’re going to do.”

Only time will tell if the Fed gets it right, or if the central bank hikes rates too aggressively and causes the economy to contract altogether. Whether the Fed succeeds will bear directly on Powell’s legacy and that of the Biden administration, which is under intense political pressure to lower prices ahead of the 2022 midterms. Inflation has emerged as the major problem spot in the economy, complicating the White House’s ability to rally support for the other sources of strength in the economy.

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Meanwhile, the Fed is increasingly having to answer for whether it was too slow to boost rates or start cutting back other supports for the economy. Powell and his colleagues have consistently said that, over the past two years, they made the best decisions they could with the information they had at the time.

But the pandemic has often blurred the understandings of policymakers in how the economy was faring and where it may be headed. With hindsight, for instance, it became clear that the government dramatically underestimated job growth in 2021.

“Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often evolves in unexpected ways,” Powell said last week. “Inflation has obviously surprised to the upside over the past year, and further surprises could be in store.”

When Biden renominated Powell in November, it was seen not only as a vote of confidence for the incumbent Fed chair, but also as a sign of continuity at the central bank amid so much uncertainty. Biden did seriously consider tapping Lael Brainard, who at the time was the only Democrat on the Fed board. He instead opted to elevated Brainard to be vice chair of the central bank.

“Why am I not picking fresh blood or taking the Fed in a different direction?” Biden said when he renominated Powell. “Put directly, at this moment of both enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve. Jay has proven the independence that I value.”

The vote comes after Biden’s other nominees, Philip Jefferson and Lisa Cook, were confirmed as Fed governors earlier this week. Brainard has also been confirmed to the No. 2 spot at the central bank. Rounding out Biden’s nominees is Michael Barr, whose confirmation hearing to be the top banking cop at the Fed will take place May 19.

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