The election of a Fed chairman is a challenge for Biden

The next Fed chairman will be called upon to tame inflation without stifling growth. If he fails, President Biden will “pay the bride.”

Amid rising inflation, US President Joe Biden is being called upon to make one of the most important economic and political decisions of his term. In the coming days, the person who will take over the reins of the US Federal Reserve will be announced. The new leadership of the central bank will determine the course of the strongest economy in the world in the coming years, as the Fed prints money, partially controls the banking regulator and sets the key interest rate. Due to the significant role of the dollar as a global medium of exchange, the selection of individuals in the leadership of the US Federal Reserve will have an international financial impact.

The US president will decide by the end of next week on the new head of the Fed, as well as on a number of members of the central board. Democrat Joe Biden could take the easy way out and secure a second term for the admittedly successful incumbent President Jerome Powell, who was elected by former President Donald Trump. A continuation of the Fed leadership would certainly have a positive impact on the international financial markets

The choice of Lael Brainard is possible

Politically, however, Powell’s decision to remain in office would not go unnoticed by President Biden. Democrats from the left wing of the party are pressuring the president not to secure a second term in Jerome Powell, accusing him of launching a relaxation of the role of the banking regulator. In addition, the American president has promised top pre-election public office to more women, members of minorities and people with an immigrant background.

An alternative to President Biden is economist Lael Brainard, who has been with the Fed since 2014. He was nominated by then-President Barack Obama and has the support of the left-wing Democrats. Her candidacy would not upset the markets because she has been a member of the Federal Reserve for years and participated in the decision-making process. The 59-year-old could become the second woman at the helm of the Fed after Janet Glenn.

Inflation reached 6.2% in October

The new Fed leadership will face great challenges. It will be called upon to gradually reduce the quantitative easing program, which prevents economic shocks due to the pandemic without jeopardizing growth. Added to this is the issue of inflation, which is far from the 2% limit set by the Fed, and reached 6.2% last October. Causes of rising inflation include energy prices, supply chain problems and a lack of microchips. Price increases affect both fuel and the food market or rents.

There are many Americans who blame Joe Biden for raising prices. In the polls, the majority say they are dissatisfied with the economic policy of the US government. Should the Fed take drastic measures against inflation, they are likely to have a negative impact on the course of the economy. And that would hurt President Biden in the run-up to the congressional election in about a year. In the long run, the choices of people in the leadership of the Federal Reserve are expected to have an impact on President Biden himself, who will have to do well in the economy to have a chance of re-election.

Jürgen Betz, dpa

Edited by: Stefanos Georgakopoulos

Source: Deutsche Welle