Jerome Powell Confirmed for a Second Term as Fed Chair

Jerome H. Powell, the Federal Reserve chair, said in an interview on Thursday that lowering inflation is likely to be painful but that allowing price gains to persist would be the bigger problem — squaring off with the major challenge facing his central bank as he officially starts his second term at its helm.

Mr. Powell, whom Senators confirmed to a second four-year term at the head of the central bank in an 80-19 vote on Thursday, holds one of most consequential jobs in the United States and the world economy at a moment of rapid inflation and deep uncertainty.

Consumer prices climbed 8.3 percent in April from the previous year, according to data reported on Wednesday. And while inflation eased slightly on an annual basis, it remained near the fastest pace in 40 years, and the details of the release suggested that price pressures continue to run hot.

The Fed has already begun raising interest rates to try and cool the economy, making its largest increase since 2000 when it lifted borrowing costs by half a percentage point this month. Mr. Powell and his colleagues have signaled that they will continue to push rates higher as they try to restrain spending and hiring, hoping to bring demand and supply into balance and drive inflation lower.

Mr. Powell suggested Thursday in an interview with Marketplace that an even bigger 0.75 percentage point interest rate increase, though not under consideration at the moment, could be appropriate if economic data come in worse than officials expect.

“The process of getting inflation down to 2 percent will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels,” Mr. Powell also said. “That’s just people losing the value of their paycheck to high inflation and, ultimately, we’d have to go through a much deeper downturn.”

Mr. Powell, who was chosen as a Fed governor by former President Barack Obama and then elevated to chair by former President Donald J. Trump, was renominated by President Biden late last year.

Understand Inflation and How It Impacts You

Though he has been popular among lawmakers for much of his tenure, several Republicans and Democrats voted against the nomination. Senator Robert Menendez, Democrat from New Jersey, cited the central bank’s failure to promote Latino leaders. Senator Richard Shelby, Republican of Alabama, cited high inflation in opposing Mr. Powell, posting on Twitter that “we should not reward failure.”

Inflation is likely to be the defining challenge of Mr. Powell’s second term. As Mr. Shelby’s comments suggest, the Fed has been criticized for responding too slowly to rapid price gains last year. Mr. Powell has emphasized that policymakers did the best they could with the data in hand.

“If you had perfect hindsight, you’d go back and it probably would have been better for us to have raised rates a little sooner,” Mr. Powell said in his interview with Marketplace. “I’m not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did the best we could.”

With Mr. Powell’s confirmation, Mr. Biden has now appointed four of the Fed’s seven governors in Washington, putting his imprimatur on the central bank at a crucial moment.

The Senate last month confirmed Lael Brainard, formerly a Fed governor, as Mr. Biden’s choice for the Fed’s vice chair, an influential position within the central bank.

This week, the Senate confirmed two other new Fed governors — Lisa D. Cook and Philip N. Jefferson. Mr. Biden has also nominated Michael S. Barr as the new vice chair for supervision, and his confirmation hearing before the Senate Banking Committee is scheduled for next week.

Ms. Brainard and Mr. Powell have long been aligned on policy, and the Fed’s newest governors — Ms. Cook and Mr. Jefferson — indicated during their confirmation hearings that they, too, are focused on fighting inflation. Fed officials view stable prices as a crucial building block for sustainable economic growth.

Inflation F.A.Q.

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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

“High inflation is a grave threat to a long, sustained expansion, which we know raises the standard of living for all Americans and leads to broad-based, shared prosperity,” Ms. Cook said during her confirmation hearing. “That is why I am committed to keeping inflation expectations well anchored.”

In addition to the new faces at the seven-person Board of Governors in Washington, several of the Fed’s 12 regional reserve banks are also experiencing personnel changes. Susan M. Collins has been selected as the president of the Federal Reserve Bank of Boston, and just this week it was announced that Lorie K. Logan would lead the Federal Reserve Bank of Dallas. Both will start this summer.

The chiefs of the Fed’s Kansas City and Chicago banks are both set to retire soon, paving the way for further leadership changes.

The Fed’s seven governors and the New York Fed president hold permanent seats on the Fed panel that votes on monetary policy, while the other regional presidents rotate into and out of four other seats.

The new central bankers will be taking office at a fraught moment, because while the economy is strong now, the Fed’s policies will probably have to weaken it and harm the labor market to cool inflation. The job market now has far more openings than workers looking for positions, and wages are rising swiftly.

“That’s not a healthy situation for an economy because it results in high inflation,” Mr. Powell said in the interview Thursday. “That’s a significant part of the inflationary story.”

The looming question for the Fed is whether officials will be able to slow the economy enough to temper inflation without spurring a recession — something Mr. Powell and his colleagues have repeatedly acknowledged is likely to be a challenge.

“There are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so,” Mr. Powell said. “So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”