"Keeping the General for the 'War on Inflation'... Powell Regime Extended for 4 More Years (Comprehensive)"

Expecting Inflation Control Effects Through Monetary Policy Normalization
Powell: "We Will Use Our Tools to Prevent Further Price Increases"

[Asia Economy New York=Special Correspondent Baek Jong-min, Reporter Jo Yoo-jin] The reappointment of Jerome Powell, chairman of the U.S. Federal Reserve (Fed), known as the 'world economic president,' has been virtually decided. Chairman Powell has been entrusted with the heavy task of overcoming the global economic collapse crisis caused by the COVID-19 pandemic, followed by the war against inflation and the normalization of monetary policy.

U.S. President Joe Biden announced Powell's reappointment on the 22nd (local time). Although the announcement was significantly delayed compared to the usual Fed chairman appointment schedule, there was no 'surprise show.' Once Senate confirmation is completed, Powell will assume the Fed chairman position for a four-year term starting February next year.

Following the announcement of Powell's reappointment, the financial market was greatly shaken. U.S. Treasury yields soared to 1.63% amid concerns over the possibility of an early rate hike. The Nasdaq index, which is sensitive to Treasury yields, plunged by 1.3%.

Jerome Powell, Chairman of the Federal Reserve (Photo by EPA)

◇ Powell: "We will use tools to prevent further price increases" = Analysts interpret President Biden's decision to retain current Chairman Powell as a move focused on controlling inflation. Although there was a 'dark horse' candidate, Lael Brainard, a Fed governor supported by the progressive camp, Biden's choice did not deviate from expectations.

In a situation where his support base is shaken by soaring inflation, rather than appointing a progressive dove who might stimulate inflation, Biden is expected to maintain the Powell administration and block inflation through monetary policy normalization, according to evaluations of this appointment.

Chairman Powell pledged to devote all efforts to easing inflation. At a press conference with President Biden on the day, Powell said, "We know that high inflation hits those who cannot properly afford the high costs of essentials such as groceries, housing, and transportation," and vowed, "We will use our tools to support the economy and a stronger labor market and to prevent further price increases from becoming entrenched." U.S. media and financial experts interpret the tools Powell mentioned as referring to interest rate hikes.

President Biden also expressed optimism. He evaluated, "Jay (Powell's nickname) helped stabilize the market with firm leadership and put the economy on a solid recovery path," and explained the background of the reappointment decision, saying, "Due to the tremendous potential and uncertainty of our economy, the Fed's stability and independence are necessary, and Fed leadership based on steady and proven principles is needed." He added, "We are in a position to attack inflation from a position of strength, not weakness."

The Wall Street Journal (WSJ) analyzed that Biden's choice of Powell over Brainard as the next chairman was an expectation to curb inflation rather than maximize employment through delayed rate hikes.

This is because the dominant expectation was that if Governor Brainard became the next chairman, rate hikes would be delayed. Given that inflation threatens President Biden's political life, he judged that Powell is the best striker. It is also analyzed that Biden's plummeting approval ratings amid soaring inflation could not be ignored.

The Washington Post (WP) explained that Powell's reappointment reflects the views of President Biden and senior aides that he supported the economy well during the COVID-19 situation and entrusted him with the mission to navigate the difficulties caused by rising prices.

Janet Yellen, former Fed chair and current Treasury Secretary, also expressed expectations, saying, "Our economy will benefit under Chairman Powell's management."

◇ Early rate hikes could hinder economic recovery = Another challenge left to Chairman Powell is the simultaneous achievement of maximum employment and inflation control, which is a difficult task. Early rate hikes to curb inflation could become an obstacle to economic recovery.

The New York Times (NYT) predicted that if the Fed starts raising rates quickly, side effects will occur. The NYT recalled that after the 2015 rate hike, there was a sharp economic downturn in heavy industry, agriculture, and other sectors. Furthermore, if the Fed leans toward tightening, risk assets such as the stock market are expected to shrink significantly. It is diagnosed that a delicate strategy is needed to manage this situation while lowering inflation.

Powell has been given the extreme mission of lowering inflation without collapsing the economy. President Biden is confident in Powell's success and has bet on him. The fate of the Biden administration depends on whether Powell completes his mission.

This content was produced with the assistance of AI translation services.