Home ›› 18 Nov 2021 ›› World Biz
US President Joe Biden's nominee as the next chair of the Federal Reserve, expected as soon as this week, will inherit an economy headed for the fastest annual growth in a generation with wage increases flowing to the lowest-paid workers, strong hiring, and household bank accounts flush with cash.
They'll also inherit a situation where homes, cars, food, and clothing are becoming steadily more expensive, and whether it's current chair Jerome Powell for a second four-year term or a promotion for current Fed Governor Lael Brainard, dealing with that inflation shock carries risks for both the president, the economy and the Fed.
Rising prices have already begun to sour the public mood, pushing Biden's approval numbers to the lowest point of his presidency, cited in polls as a concern that crosses party lines and income brackets and which is shared even among those for whom higher prices have been offset by ongoing government payments.
For the Fed, it has presented an old problem in fresh circumstances - with tangled global supply chains, a hard-to-read and potentially diminished US labor market, and rising prices potentially forcing them to raise interest rates and slow growth before the economy recovers the jobs and workforce levels seen before the coronavirus crisis.
It's a choice both Biden and the Fed hoped could be avoided in a drive to push job growth further and deeper into the economy, on the expectation inflation would behave roughly the same as it did before the pandemic. It hasn't.
"Six percent inflation is not the right level of inflation, we can all agree on that,” said Nela Richardson, chief economist for payroll processor ADP, citing recent consumer price increases, at a 30-year high, that have wiped out rising wages and far outstripped the Fed's 2 per cent target.
The Fed still expects that high pace of price increases to be "transitory," but "wealthier consumers have the luxury of time," Richardson said. "Low-income less-skilled consumers do not. As much as I understand the transitory argument, waiting it out is not the best option for some people."
A lot of continuity
Biden said Tuesday he would make a decision on the Fed in around four days. Powell's current term ends in February and whether Biden chooses him or Brainard - both have been interviewed - the nominee will need to go through a confirmation hearing and vote in a closely divided Senate.
But a process that began as a somewhat clear-cut choice - stick with the Republican Powell for continuity and bipartisanship or tap the Democrat Brainard to reward supporters and pursue a broader remake of the central bank - has turned trickier.
Both are practiced central bankers who have worked together for years and shared in remaking Fed policy to put more emphasis on jobs and allow some higher inflation to do so. Both will have to wrestle in coming months with the same dilemma of how far to let those inflation risks run before taking action.
