WASHINGTON — The Senate on Thursday confirmed Jerome Powell to a second four-year term as Federal Reserve Chair, giving bipartisan support to Powell’s efforts to curb the highest inflation in four decades.
The 80-19 vote reflected broad support in Congress for the Fed’s efforts to combat rising prices through a series of sharp rate hikes that could stretch well into next year. The Fed’s goal is to slow borrowing and spending enough to ease inflationary pressures.
Powell had temporarily headed the Fed since February, when his first term ended.
He faces a difficult and risky task trying to quell inflation without weakening the economy enough to cause a recession. The job market remains resilient and has strengthened to a point that Powell says is “unsustainably hot” and is contributing to an overheated economy.
Soaring prices across the economy have hurt millions of Americans whose wages cannot keep up with the cost of food, gas and rent. And the prospect of steadily rising interest rates is unsettling the financial markets, and share prices have been falling for weeks.
In an interview with NPR’s Marketplace later Thursday, Powell acknowledged that the Fed’s ability to successfully slow the economy and reduce inflation without triggering a recession — a so-called “soft landing” — depends on “factors that… we don’t control,’ like Russia’s invasion of Ukraine and slowing growth in China.
That contrasts with previous, more confident statements from Powell, including just last week when he said, “We have a good chance of having a soft or soft landing.”
Powell’s support Thursday in the Senate was about the same as he received four years ago after he was first named chairman by President Donald Trump. At the time, the Senate voted 84-13 to confirm it.
To some extent, Powell’s support in Congress reflects the blame most Republicans place on President Joe Biden’s $1.9 trillion COVID relief package — rather than the Fed’s ultra-low interest rates — for causing a attribute to high inflation. Many economists, including those who have served in previous Democratic administrations, agree that Biden’s legislation played a role in accelerating prices.
Powell’s confirmation comes as many economists have sharply criticized the Fed for waiting too long to respond to worsening inflation, making its task more difficult and risky.
Prices first rose a year ago after Americans increased spending after vaccines were administered and COVID restrictions began to ease. The surge in demand caught many businesses off guard and with shortages of supplies, causing the prices of goods like cars, furniture and appliances to skyrocket — if consumers could even find them. Since then, high inflation has spread to most of the rest of the economy, including rent and other services such as hotel rooms, restaurant meals, and medical care.
For months, Powell reiterated his view that inflation is only “temporary” and will soon ease once supply constraints are resolved. The Fed continued to buy Treasuries and mortgage bonds through March, when prices were up 8.5% yoy. The bond purchases should keep interest rates on long-term loans low. Just two months ago, the central bank raised interest rates from near zero to a range of 0.25% to 0.5%.
“They could have started unwinding (buying bonds) earlier and started tightening earlier, especially when this strong data came in,” said Kristin Forbes, an economist at MIT’s Sloan School of Management and a former member of the Monetary Policy Committee Bank of England.
Powell and other officials have since acknowledged that the Fed could have started tapering stimulus sooner. However, they suggest that most economists outside the Fed also initially thought high inflation would prove short-lived.
“Hindsight says we should have moved sooner,” Powell admitted during a Senate hearing in early March.
The Fed’s view that inflation mostly reflects supply shocks that would soon subside “turned out to be wrong,” Powell conceded, “maybe not conceptually wrong, but it’s just taking so much longer for the supply side to recover than it has.” we thought.”
Christopher Waller, a member of the Fed’s executive board, said last week that the central bank was partly unnerved by reports in August and September that suggested the job market was weakening. Slower hiring would have made it harder for workers to secure sizeable pay rises, helping to keep inflation in check.
But those hiring reports and the three that followed were later revised upwards by a total of about 1.5 million jobs, Waller said, underscoring the extraordinarily high demand for workers, which has also boosted wages.
“If we had known then what we know now, I think[Fed policymakers]would have accelerated the tapering[of bond purchases]and hiked rates sooner,” Waller said Friday. “But nobody knew, and that’s the nature of real-time monetary policy.”
The Senate has already confirmed three of Biden’s other candidates for the Fed’s board of governors: Lael Brainard, who is now vice chair, and Lisa Cook and Philip Jefferson. All three will vote on central bank interest rate decisions and financial regulation policies.
Cook and Jefferson are both black, meaning the Fed’s board now has two black members for the first time in its 108-year history. Cook, a professor of economics and international relations at Michigan State University, will be the first black woman on the board.
Biden has also nominated Michael Barr, a former Treasury Department official who helped draft the Dodd-Frank Financial Regulation Act of 2010, as the Fed’s top banking regulator and filled the last vacancy on the seven-member board. Sen. Sherrod Brown, the Ohio Democrat who chairs the Senate Banking Committee, said Thursday that his committee will hold a hearing on Barr’s nomination next week.
In the past, politicians have often spoken out against higher interest rates for fear of job losses. The chronically high inflation of the 1970s has been attributed in part to political pressures that caused the Fed to refrain from raising interest rates sharply under Presidents Lyndon Johnson and Richard Nixon.
Powell himself came under fire from Trump when the Fed hiked interest rates in 2017 and 2018 after the unemployment rate hit a half-century low of 3.5%. Powell reversed some of those hikes in 2019 after the economy slowed following Trump’s tariffs on Chinese imports.
This week, Biden said that while he respects the Fed’s independence, he supports its efforts to raise lending rates, which have already pushed up the cost of mortgages, auto loans and corporate borrowing.