US President Joe Biden and Federal Reserve (Fed) Chairman Jerome Powell, November 22, 2021 (AFP / JIM WATSON)
The President of the American Central Bank Jerome Powell will promise Tuesday, in front of the Senate, to do everything possible during his second mandate “to prevent inflation from taking root” in the United States.
President Joe Biden announced on November 22 that he had reappointed him for a second four-year term, but he has yet to receive confirmation from the Senate.
Mr Powell is credited with taking the swift and sweeping action necessary to keep the economy afloat during the historic recession caused by the Covid-19 pandemic, so that his confirmation is not in jeopardy.
But Americans’ heightened frustration with soaring prices is likely to push Congress to grill the boss of the Federal Reserve (Fed) – a Republican who had been appointed by former President Donald Trump – on how the Fed intends to do it to contain inflation.
“We will use our tools to support the economy and a strong labor market and to prevent inflation from taking root,” he said according to a speech prepared in advance and released on Monday, without further details .
For his part, the Chairman of the Federal Reserve of Atlanta Raphael Bostic stressed in an interview with the Wall Street Journal that he was open to the Fed raising its short-term rate target as soon as its meeting in March. “Every meeting has the potential for political action,” he also added.
Consumer prices in the United States rose in November at a rate not seen in nearly 40 years, to 6.8% last month compared to November 2020.
Data for December will be released on Wednesday.
Jerome Powell will express his support for the poorest households hard hit by this price increase which affects essential products such as food, housing and transport.
“We are strongly determined to achieve our statutory objectives of maximum employment and price stability”, he will also declare.
For “Jay” Powell, however, the way forward is perilous because his main tool is to raise key rates.
However, if the Federal Reserve (Fed) increases them too quickly, the economy could weaken and even sink into recession, dashing hopes of the “maximum employment” objective.
But acting too slowly to contain price spikes could lead to even higher inflation.
Either scenario would also be a nightmare for Democrats under President Joe Biden in a midterm election year. And in any case, a rate hike will not have an immediate effect.
Jerome Powell should also be questioned by Senator Elizabeth Warren on the stock market activity of Fed officials.
A series of revelations on important transactions carried out by several of them, including Jerome Powell, although legal but during the economic crisis linked to Covid-19, shocked public opinion in the fall.
This had led to the resignation of the regional chairmen of the Boston Fed, Eric Rosengren, and that of Dallas, Robert Kaplan, and new internal rules had been established.
The vice-president of the institution, Richard Clarida, also announced Monday his intention to resign before his mandate expires at the end of January.
Mr. Clarida did not give any specific explanations for this departure scheduled for January 14.
Senator Elizabeth Warren, Democrat of Massachusetts, asked the Fed in a letter sent on Monday to release more information on these stock transactions.
Dt / dho / LyS