•Press Release Economic Crisis and Recovery Economic Policy Government
Washington, DC — President Biden made the right decision in reappointing Jerome Powell as chair of the Federal Reserve Board. Powell has fundamentally changed the focus of the Fed from an excessive concern with inflationary risks to a more balanced approach that recognizes the Fed’s mandate to pursue full employment.
Because of Powell’s approach, we were able to get the unemployment rate down to 3.5 percent in the months before the pandemic, a level that many economists had wrongly believed would trigger spiraling inflation. This low level of unemployment allowed millions of people to get jobs who would not have had this opportunity if the Fed had pursued its prior policy of raising interest rates in anticipation of inflation.
Disproportionately, the people who benefited from this period of low unemployment were Blacks, Hispanics, people with less education, the disabled, and people with criminal records. Also, the tight labor markets of the pre-pandemic years gave tens of millions of workers at the middle and the bottom of the pay ladder the bargaining power to secure real wage gains. This was the first period of sustained real wage growth since the 1990s boom.
Powell also was enormously important in steering the economy through the pandemic and helping to foster a rapid recovery. The current 4.6 percent unemployment rate is far lower than had been predicted last year. It is a level not reached following the Great Recession until February of 2017, almost a decade after the start of the recession.
Biden was also right to promote Lael Brainard to vice chair. She shares Powell’s commitment to full employment policies and shares the credit for the economy’s performance both before and after the pandemic. In addition, she has a strong commitment to sound financial regulation. If President Biden selects a strong regulator as vice chair for supervision, Brainard will be a reliable colleague in the effort to limit abuses in the financial sector.
The economy is facing serious uncertainty with supply chain problems and a major reshuffling in the labor market. In these circumstances, not reappointing Powell would have been a pointless risk. However, being led by the team of Powell and Brainard, the Fed will be well-positioned to get us through this difficult period.