Biden to renew Jerome Powell as Fed chairman, economists say

BENGALURU / WASHINGTON, July 16 (Reuters) – US President Joe Biden will reappoint current Federal Reserve Chairman Jerome Powell for a second four-year term starting next February, according to an overwhelming majority of economists polled by Reuters this week.

Powell succeeded Janet Yellen as chairman of the Fed’s board of governors in February 2018 and had to maneuver the economy through its worst crisis since World War II, battered by the COVID-19 pandemic that began in beginning of last year.

The White House will decide in the coming months whether it wants Powell to stay, but any decision to replace him could trigger a market reaction as the US economy grapples with high inflation and employment activity lags behind the overall recovery.

Ninety percent of economists, or 36 out of 40, in response to a supplemental question in the July 12-15 Reuters poll on the U.S. economy, said Biden would choose the status quo.

“It’s (Powell’s reappointment) likely at this point. Powell has strong competition, especially from Lael Brainard, one of her colleagues as governor. She’s the second most likely, but Powell is the favorite right now, ”said James Sweeney, chief economist at Credit Suisse.

Jim O’Sullivan, chief U.S. macro strategist at TD Securities, agrees.

“I guess it’s like a tradition. If you’re seen to be doing a decent job for continuity, the president kind of renews his terms, even though it’s a president of a different party who appointed him. in the first place, ”he said. .

During Congressional hearings this week, Powell pledged “strong support” to complete the economic recovery from the pandemic and said the Fed should remain focused on getting as many people back to work as possible. He also said the sudden spike in inflation was transient. Read more

Powell’s focus on jobs won praise from the Biden administration and the broader community of Democratic political analysts. A private equity lawyer promoted to President of the Fed by Republican President Donald Trump, he also won the first approvals for a second term from some Republicans in Congress.

But those same hearings saw pointed questions from members of both sides, offering insight into issues that may frame the debate over Powell’s future. Republicans have said they fear the recent high inflation will continue and that Powell is taking an overly lax approach in this regard; some Democrats have argued that he hasn’t been tough enough on the big Wall Street banks.

A change in the Fed’s leadership role would come as the central bank plans to phase out $ 120 billion in monthly bond purchases and handle the political debate over mounting inflationary pressure, both sensitive discussions and potentially disruptive to the market.

Four Reuters poll economists said Biden would not reappoint Powell, two of them predicting that central bank board member Lael Brainard would take over.

“It’s a very close call. Powell has done a good job and is working well with the US Treasury, but we wouldn’t be surprised to see Joe Biden looking to build diversity at the top levels,” said James Knightley, economist in international chef at ING. .

US Treasury Secretary Janet Yellen and Powell were due to discuss the scorching real estate market and its risks with other regulators on Friday to ensure the country is not vulnerable to a crash similar to the 2008 financial crisis. . read more

A sudden drop in house prices could pose another serious threat to the economy. Meanwhile, the highly infectious Delta variant that has become the dominant strain of COVID-19 and other variations is the main economic risk this year.

Reporting by Shrutee Sarkar; Additional reports by Howard Schneider; Poll by Hari Kishan, Manjul Paul and Tushar Goenka, edited by Rahul Karunakar and Andrea Ricci

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