US President Joe Biden and Jay Powell at the White House
US President Joe Biden nominates Jay Powell for a second term as Federal Reserve chair at the White House on Monday © AP

Joe Biden has nominated Jay Powell to serve a second term as chair of the Federal Reserve, opting for continuity at a delicate moment for the US economy as it confronts persistently high inflation and a patchy labour market recovery.

Lael Brainard, considered Powell’s main competitor for the top job, was selected for the role of vice-chair, a position at present held by Richard Clarida.

Biden praised Powell’s response to the coronavirus pandemic, his commitment to the Fed’s goals of full employment and stable prices, and his defence of the central bank’s “integrity and credibility” during the administration of Donald Trump.

“We’re in a position to attack inflation from a position of strength, not weakness,” Biden said.

The decision ends months of speculation about the Biden administration’s appetite to reshape the Fed. It comes as the central bank debates how to fine-tune monetary policy in the face of supply-related disruptions and mounting inflationary pressures.

Both Powell and Brainard vowed to fight high prices. “We know that high inflation takes a toll on families . . . We will use our tools both to support the economy and a strong labour market, and to prevent higher inflation from becoming entrenched,” Powell said.

Brainard added that she was committed to “getting inflation down at a time when people are focused on their jobs and how far their pay cheques will go” as well as “supporting a growing economy that includes everyone”.

This month, the Fed began winding down its monthly $120bn asset purchase programme, with an intention to end the stimulus altogether next summer.

But recent inflation data, which showed US consumer price growth jumping at the fastest pace in roughly three decades last month, has raised the prospect that the Fed will have to discard its patient approach to monetary policy by accelerating the “taper” of the bond-buying programme before swiftly raising interest rates multiple times next year.

Biden did not appoint anyone for the handful of vacant spots on the Fed board, including vice-chair for supervision, which is responsible for banking regulation. The White House said those appointments would begin in early December.

Powell, 68, was elevated to Fed chair by Trump in 2017 after serving as a governor from 2012 and once worked as a top Treasury official under George HW Bush. He was viewed as the least controversial choice for Biden, particularly as Powell’s broad bipartisan support is likely to ease the passage of his confirmation process through the Senate.

Powell’s backers also made the case that at a time of such pronounced economic uncertainty, a leadership change could generate unnecessary market volatility.

Having led the central bank’s response to the pandemic, Powell won plaudits for preventing more extreme market panic and steering the US economy through one of its worst contractions.

In sticking with Powell, a Republican, Biden disregarded progressives’ criticism of the incumbent’s record on regulation, which caused what they said was a dilution of post-financial crisis rules for the biggest financial institutions.

Elizabeth Warren, the leftwing Democratic senator from Massachusetts, said she opposed Powell’s renomination and would vote against him. But she said she backed Biden’s nomination of Brainard as vice-chair. “Powell’s failures on regulation, climate and ethics make the still-vacant position of vice-chair of supervision critically important,” she said.

Brainard opposed easing capital and liquidity requirements for US banks during Powell’s tenure, as well as modifications to Volcker rule guidelines on proprietary trading.

After the announcement, a closely watched market measure of interest rate expectations, eurodollar futures, indicated that at least three quarter-point interest rate rises were being fully priced in by December 2022. The two-year Treasury yield, which moves with interest rate expectations, rose to its highest level since March 2020.

Biden’s picks will need to be confirmed by the Senate. Early comments from lawmakers suggested that Republicans would largely back Powell’s renomination.

Pat Toomey, the top Republican on the Senate banking committee, said he would support Powell’s confirmation but was less firm in his support for Brainard, saying he had “concerns about regulatory policies that Governor Brainard would support”. His comments were echoed by Kevin Cramer, another Republican on the banking committee.

Biden’s pick adheres to the rarely broken tradition of reappointing an existing Fed chair to the job during a president’s first term in office — a nod to policymaking continuity and the independence of the central bank.

Barack Obama reappointed Ben Bernanke as Fed chair in 2009, while Bill Clinton did the same with Alan Greenspan in 1996. But Trump broke the mould four years ago when he picked Powell rather than give Janet Yellen a second term.

Additional reporting by Kate Duguid and Lauren Fedor

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