Jerome Powell four-year term as Chair of Federal Reserve System will be ending in coming Feb 2022. Street is speculating whether Mr Powell will get a nomination from President Joe Biden for second run. Powell will be the street favourite due to his deep understanding of financial markets, Global Economy and going easy with the tapering. President Joe Biden is yet to decide on the reappointment. It has been earlier reported by various media reports that Treasury Secretary Janet Yellen is supporting reappointment of Mr Powell as Fed’s Chair. However few democrats favouring Climate Agenda are opposing his renomination. He has been criticised for not taking adequate supervisory measures for climate risk management for financial sectors.
US under the leadership of President Joe Biden has made commitment to meet the Paris Agreement target for keeping the average global temperatures to 1.5 degrees Celsius. The recent executive order on Climate-Related Financial Risk provides for assessing the financing needs of the US Economy, for achieving net-zero carbon emission by 2050. Commitment of the Government towards climate, makes it imperative to see who would be chairing the Fed in 2022.
Fed Chair’s efforts and commitment for fixing unemployment issues during pandemic, whilst containing inflation, have been widely recognised and applauded even by his fierce critics. His efforts have gone a long way in bridging the social divide, even in the worst of times, impacting humanity across borders.
Fed, under his leadership has been successful in handling the challenge of high unemployment arising from pandemic. Whilst addressing economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Mr Powell highlighted that the unemployment rate has declined to 5.4 percent, a post-pandemic low. Though Inflation is much higher above the target of two, but Fed has prioritised the goal of maximum employment instead of blindly taming the inflation. Fed Chair also hinted that, Fed may start reducing the pace of asset purchases this year as substantial progress has been made in increasing the employment rate as well reducing the inflation., reiterating Fed’s commitment to continue supporting accommodative financial conditions.
Congress has assigned responsibility to Fed Chair to have a sound monetary policy for maintaining a strong and healthy economy, which promotes maximum employment and price stability. COVID-19 pandemic had a big impact on the economic activity and labour markets in the United States. During the pandemic, level of gross domestic product (GDP) fell a cumulative 10 percent over the first half of 2020, and the unemployment rate was unprecedented, matching the unemployment scenario of the post–World War II i.e., 14.8 percent in April 2020. The Federal Reserve stepped in to support the economy and provide stability to the financial market, including up to $2.3 trillion in lending to support small and mid-size business, extending Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) for increasing liquidity flows to households & business, helping state and local governments to manage cash flow stress.
Mr Powell’s policy initiative focused on keeping the interest rates low, increasing the asset purchases program, establishment of emergency lending facilities, and other important actions required to support the markets in functioning smooth, together with fiscal policy for supporting the flow of credit in the economy and smooth market functioning.
Though Mr. Powell has been criticized for not building enough safeguard for handling climate related risk in the financial ecosystem, the Fed is inching closer towards the climate Agenda, under his leadership. In 2020, Fed joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) for scaling up the Green Finance. Global Financial Systems and Markets are intrinsically linked and Fed’s monitory policy plays a vital role in impacting the Global Financial Eco System. Who will chair the Fed in 2022 and what will be the CenterStage of policy (whether accommodative monetary policy or Climate focused), remains to be seen? Even if Mr. Powell is re-nominated, it will be difficult to push climate agenda to the back seat, given President Joe Biden’s commitment to the Climate. Fed will be reshaping in times to come.
Bureau Galactik Views