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Bloomberg Editorial: Powell Is The Right Decision For The Fed

President Joe Biden was correct in his decision to nominate Federal Reserve Chairman Jerome Powell for a second term. It does not mean any irreverence towards Lael Brainard, to whom they were considered as an alternative.

The White House says she will be nominated for vice president instead. They are both eminently capable central bankers, but Powell had two good reasons: the need for continuity and the need to resist the politicization of the company. Fed at a time when your independence could be in question.

The Biden Administration has no disagreement with the way the Fed has conducted monetary policy during Powell’s first term. Faced with the challenge of the pandemic, the central bank maintained strong and constant support for demand and managed to keep financial markets functioning well — aspects that should not be taken for granted.

In recent months, inflation has risen more than most analysts expected due to supply chain disruptions. Some of this increase is likely temporary, but by how much is unclear. Policy needs to be tightened, and this is underway: The Fed has announced that it will reduce its bond purchases in the coming months, and financial markets are beginning to anticipate an earlier rise in interest rates.

It is essential to maintain confidence in the ability of the Fed to meet its double commitment on inflation and employment. It might have been better to start reducing its stimulus program earlier, when the first signs of higher-than-expected inflation appeared. But it was a difficult decision, and Powell and Brainard did not disagree on this point.

Looking ahead, it would also be a mistake to adjust abruptly to respond to recent events. Better to push investor expectations in the right direction than to push them too hard. Once again, Powell and Brainard probably agree. The appointment of a new leadership in the midst of this delicate transition would have served no purpose except to question the continuity of monetary policy, an unnecessary risk.

Any suspicion of political calculations would have seriously compounded that mistake. Powell He is a Republican and Brainard a Democrat. Their ability to work closely as colleagues is welcome in its own right and sets an example for other parts of Government.

Choosing Brainard over Powell in response to calls by progressives for a partisan appointment would have simply sparked opposition to Brainard in Congress and brought the Fed one step closer to being perceived as a political actor rather than a politically independent entity by service of public interest. Let’s give Biden credit for acknowledging this drawback.

It is clear that, although they broadly agree on monetary policy, Powell and Brainard they have not always coincided. Brainard favors a stricter approach to regulation and has disagreed with many of the Fed’s moves to ease financial controls in recent years. But rename Powell as president he does not exclude a review of the central bank’s regulatory approach.

The board of the Fed currently has one vacancy and there will be two more shortly; Biden He also has leadership roles to fill, including that of the supervisory vice presidency. If the president prefers stronger financial oversight, he will have the opportunity to encourage it.

At this juncture, signaling continuity and bipartisan competition in monetary policy should be the top priority. Biden chose well.

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