US President Joe Biden has selected Jerome Powell for a second four-year term as Federal Reserve chairman while elevating Governor Lael Brainard to vice chair, keeping consistency at the US central bank as the nation grapples with the fastest inflation in decades and the lingering effects of Covid-19.
The move, announced by the White House on Monday, rewards Mr Powell for helping rescue the US economy from the pandemic and gives him the task of protecting that recovery from a surge in consumer prices.
"As Chair, Jay took a landmark review to reinforce the Federal Reserve's mission toward delivering full employment, making strong progress toward that goal now, and I believe Jay is the right person to see us through and finish that effort, while also addressing the threat of inflation," Mr Biden said in remarks from the White House on Monday.
Mr Powell, a Republican, faces what is likely to be a smooth confirmation in the Senate, where he was backed for his first term as chair in an 84-13 vote.
Mr Powell has enjoyed bipartisan support, including from Treasury Secretary Janet Yellen and other Democrats, although progressive Democrats such as Elizabeth Warren of Massachusetts lobbied the president to choose someone more aligned with the party on overseeing banks and battling climate change.
"Why am I why am I not picking fresh blood or taking the Fed in a different direction? Put directly at this moment both of both enormous potential and enormous uncertainty for our economy. We need stability and independence at the Federal Reserve and Jay has proven independence," Mr Biden said.
Dr Brainard would replace Richard Clarida in the vice chair slot and may face opposition from Senate Republicans for her confirmation. She was interviewed by Mr Biden for the chair position and was seen as a strong contender for the separate job of vice chair for supervision, which remains vacant.
In an earlier statement, Mr Biden called the economic recovery so far a “testament to the economic agenda I’ve pursued and to the decisive action that the Federal Reserve has taken under Chairman Powell and Dr Brainard to help steer us through the worst downturn in modern American history and put us on the path to recovery".
The president added: “I’m confident that Chairman Powell and Dr Brainard’s focus on keeping inflation low, prices stable and delivering full employment will make our economy stronger than ever before.”
Investors expect the Fed to raise rates from near zero in June, pricing in interest-rate futures markets showed. US equity futures extended gains and Treasuries stretched losses on the Fed news.
“Clearly the market is looking at the likelihood that the Fed will increase the rate of tapering and move up the timing of the first rate hike now that Powell” is renominated, Kathy Jones, chief fixed-income strategist at Charles Schwab, said on Bloomberg Television after the news was released.
Mr Biden plans to announce that nomination along with additional picks for open seats on the Board of Governors beginning in early December, the White House said.
The Fed chairman also had to answer for an ethics scandal after trading revelations by some senior Fed officials.
Mr Biden’s choice of Mr Powell is also likely to win approval from investors by ensuring continuity at the central bank as it begins withdrawing ultra-easy monetary policy amid the challenges of persistent inflation.
He also singled out what he called their “deep belief that urgent action is needed to address the economic risks posed by climate change and stay ahead of emerging risks in our financial system".
Dr Brainard and Mr Powell have similar views on monetary policy, but differ over bank regulation, with Dr Brainard opposing at nearly every step Mr Powell’s modest rollbacks of some of the tough curbs imposed on banks after the financial crisis.
The vice chair nominee was appointed a Fed governor in 2014 by former president Barack Obama. In 2020, Mr Biden considered picking her as treasury secretary, before he picked Ms Yellen.
A graduate of Harvard University, Dr Brainard served in Bill Clinton’s White House as deputy national economic adviser. In 2009, under Mr Obama, she joined the Treasury Department and became undersecretary for international affairs in 2010.
Mr Powell’s second term is going to be very different from his first. While the economy is rebounding, inflation is running at a three-decade high, Covid-19 cases remain elevated and strained supply chains present big uncertainties.
Some officials are already suggesting the Fed may need to pull back its asset-purchase programme faster than planned and Mr Powell will also be presiding over a committee with a number of members who are likely to want to raise interest rates sooner than he does.
The Fed chairman said this month he will not consider increasing rates until the labour market shows greater signs of healing.