Fed Chair Jerome Powell is confirmed for a 2nd term. Inflation will be his focus
Jerome Powell was confirmed Thursday to a second term as chair of the Federal Reserve, a powerful post from which he'll lead the central bank's challenging campaign to bring down inflation.
The 80-19 Senate vote comes as the Fed is under intense pressure to rein in consumer prices, which have been climbing at the fastest pace in decades.
It also caps an unusually combative confirmation process for leadership at the central bank, which is typically more insulated from partisan politics.
Another nominee for the Fed's board of governors, Sarah Bloom Raskin, was torpedoed by opposition from Republican senators and a key Democrat over her push to have bank regulators pay more attention to the financial risks posed by climate change.
A third nominee, Lisa Cook, was confirmed by the narrowest of margins Tuesday, with Vice President Harris casting a tie-breaking vote. Cook became the first Black woman to serve on the Fed's board.
Powell enjoys more bipartisan support, although his stewardship of the Fed will be tested by inflation, which reached a 40-year high of 8.5% in March before declining slightly to 8.3% in April.
Powell's first term was marked by a big U-turn
As chairman, Powell has steered the Fed through a dramatic U-turn. Early in the pandemic, he and his colleagues slashed interest rates close to zero, in an effort to prop up the economy. Now, they're aggressively raising rates, to tamp down demand and bring prices under control.
"Inflation is much too high," Powell told reporters earlier this month. "We understand the hardship it is causing and we're moving expeditiously to bring it back down."
The Fed raised interest rates by half a percentage point last week — the sharpest jump in more than two decades — and telegraphed plans for two more, similar-sized rate hikes in June and July. By raising borrowing costs, the Fed hopes to discourage the sizzling consumption that's been pushing prices higher.
Sen. Sherrod Brown, D-Ohio, who chairs the Senate Banking Committee that oversees the Fed, praised Powell as "a reliable voice and a steady hand" throughout the pandemic and the economic turmoil that followed.
Some critics say the Fed was slow to respond to soaring prices. For much of last year, Powell and his colleagues believed that high inflation was a temporary byproduct of the pandemic, and would soon cool off on its own. The Fed kept its easy-money policies in place for two full years, in an effort to promote full employment.
That push worked, but it also may have contributed to today's high prices. The labor market is unusually tight, and wages are rising at a rapid rate — although not fast enough to keep pace with inflation.
Getting inflation under control is a top Fed priority
Powell and his colleagues hope they can control inflation through higher interest rates without tipping the economy into recession. But the Fed chairman appears willing to do whatever is necessary to restore price stability.
"There may be some pain associated with getting back to that," Powell said last week. "But the big pain over time is in not dealing with inflation and allowing it to become entrenched."
Powell has spoken admiringly of former Fed chairman Paul Volcker, who famously tolerated punishing, back-to-back recessions in the early 1980s in order to break a decade-long cycle of runaway inflation.
"He had the courage to do what he thought was the right thing," Powell said of Volcker. "That's the test."
'Well-qualified members of the Board'
Powell, a Republican, was initially appointed to the Federal Reserve board by then-President Obama in 2012 and elevated to chairman by then-President Trump. Powell was confirmed to his first term heading the central bank by a 84-13 Senate vote.
President Biden said he's pleased to see Powell confirmed, along with Cook and two other Fed nominees, Lael Brainard and Philip Jefferson.
"These well-qualified members of the Board will bring the skill and knowledge needed at this critical time for our economy and families across the country," Biden said in a statement.
The president also urged the Senate to quickly confirm Michael Barr, whom he nominated for a key regulatory post at the central bank after Raskin's nomination was withdrawn.
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Transcript
AILSA CHANG, HOST:
Jerome Powell will continue to lead the fight against high inflation. This afternoon, the Senate confirmed Powell to serve a second term as chairman of the Federal Reserve. It is one of the most powerful economic jobs in the country, affecting everyone who carries a credit card or a home mortgage. And it is an especially challenging job right now when the Fed is under intense pressure to rein in soaring prices.
For more on this, we're joined now by NPR's Scott Horsley. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Ailsa.
CHANG: All right. So when you look back at Powell's first term as Fed chair, I mean, it was marked by the onset of the pandemic and all the economic turmoil that followed. How do you think his second term's shaping up so far?
HORSLEY: Well, it's going be very different but certainly not much easier. When the pandemic first hit two years ago, 22 million people were thrown out of work. The Fed slashed interest rates close to zero and tried to prop up the economy and speed the return to full employment. Powell and his colleagues were pretty successful in that effort, but that also contributed to the really high inflation we've got now. You know, inflation was running at 8.5% in March. It was almost that high in April. So now the Fed has done a quick about-face, and it started to raise interest rates at a rapid clip to try to tamp down demand and cool off these big price hikes.
CHANG: OK. So lower inflation does sound pretty good, but what are the risks of this approach?
HORSLEY: The danger is that by making it more expensive to borrow money, the Fed doesn't just chill demand but smothers it and sends the economy into recession. Critics say that danger is heightened because the Fed waited so long to act and let inflation get so high.
Now, Powell and his colleagues have said they think the job market is strong enough to weather these higher interest rates without a big jump in unemployment. But Powell has also made it clear he's determined to do whatever it takes to get inflation back down and restore price stability.
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JEROME POWELL: There may be some pain associated with getting back to that. But, you know, the big pain is in not dealing over time, is in not dealing with inflation and allowing it to become entrenched.
HORSLEY: The Fed raised interest rates by half a percentage point last week, which was the biggest jump in more than 20 years. And Powell has signaled that two more similar-sized rate hikes are likely in June and July. Rising interest rates and the fear of recession are what's behind the steep drop we've seen in the stock market in recent days.
CHANG: Yeah. OK. Well, Powell's confirmation vote was bipartisan, but it does cap a pretty bitter fight in the Senate over leadership at the central bank. And I'm curious, what was the breakdown of the vote on him today?
HORSLEY: The vote for Powell was pretty lopsided, actually - 80-19 - which is rare in a polarized environment like we're in. But it's actually not that unusual for the Fed. The central bank is supposed to be pretty insulated from partisan politics. Powell, who is a Republican, has carefully courted lawmakers on both sides of the aisle, and he's won a lot of bipartisan respect. He was originally appointed to the Fed board by former President Obama. He was promoted to chairman by then-President Trump and now reappointed by President Biden.
Ohio Senator Sherrod Brown, who's a Democrat that chairs the committee that oversees the Fed, says Powell has earned the chance for a second term.
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SHERROD BROWN: He played an instrumental role in stabilizing our economy in the face of the coronavirus pandemic. He's been a reliable voice and a steady hand through this crisis.
HORSLEY: Other Fed nominees this year have faced much more contentious confirmation battles, though. Sarah Bloom Raskin was forced to drop out. Another board nominee, Lisa Cook, was passed on a straight party-line vote. So partisanship is chipping away at the Fed's political insulation. And that's going to be one more challenge for Chairman Powell, especially as Republicans try to weaponize inflation to score points in the midterm elections.
CHANG: That is NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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