Powell pick will maintain continuity in Fed monetary policy: Analysts

ANKARA

Federal Reserve Chair Jerome Powell getting the nod from President Joe Biden to lead the Fed for a second term will maintain continuity in the central bank's monetary policy, according to analysts.

"The president’s Fed picks ensure the status quo on monetary policy and financial regulation," Mark Zandi, chief economist at Moody's Analytics, told Anadolu Agency via email.

"The Fed will continue to slowly and steadily ease monetary support for the economy, and up requirements on financial institutions to prepare for climate change," he added. “Given how uncertain the (US) economic outlook is, reducing the uncertainty around Fed policy makes a lot of sense.”

Biden told a Monday press conference that he is confident Powell, originally appointed Fed chair in 2018 by then-President Donald Trump, will focus on keeping inflation low, prices stable, and delivering full employment, in addition to addressing the economic risks posed by climate change, and stay ahead of emerging risks in the US financial system.

"At this moment of both enormous potential and uncertainty for our economy, we need stability and independence at the Federal Reserve," said Biden.

Inflation challenge

The most immediate challenge ahead of the Fed is record-high inflation in consumer prices, which climbed to 6.2% in October, the largest 12-month rise in over 30 years.

"The Fed is in a bind, as its assessment that inflation is transitory, though correct, is lasting longer than previously thought," Ryan Sweet, a leading US economist at Moody's Analytics, told Anadolu Agency via email.

"The Fed will remain patient in raising the target range for the federal funds rate, as it knows tightening prematurely will delay the economy returning to full employment," he predicted.

Biden on Monday emphasized Powell's commitment to reinforcing the Fed's mission in delivering full employment.

Tapering, rate hikes

Powell is known for focusing on achieving maximum employment in the labor market before making a rate hike. But first the Fed has to make room for such a policy change, which recently began with tapering.

At its last two-day meeting on Nov. 3 the Fed announced that this month it would begin the process known as tapering (lowering asset purchases), and that it may adjust the pace of purchases if warranted, depending on the economic outlook.

"The Fed’s near-term forecast for inflation has likely changed, and that allows it to accelerate the tapering, increasing it in December from $15 billion to $20 billion,” said Sweet.

“This will likely be the new norm, and tapering by $20 billion per month would wrap the process up in March or mid-April, a few months earlier than previously thought.”

He added: "Accelerating the tapering could help take some of the pressure off the Fed to act to address inflation, and it will show the bank is not ignoring the acceleration in inflation. Also, ending tapering sooner gives the Fed the ability to raise interest rates in the second half of next year.”

Sweet noted that he expects the Fed's first rate hike to come in the fourth quarter of 2022, pushed back from a previous estimate of early 2023.​​​​​​​