Biden has to fill the head of the central bank again

The next head of the US Federal Reserve is facing major challenges.

He or she will have to tame inflation - without stalling the economy.

Otherwise this could ruin Biden's balance sheet.

Washington - Amid concerns about the dramatic rise in inflation, US President Joe Biden has to make one of the most important economic policy decisions of his term in office: He will shortly choose who will head the powerful Federal Reserve (Fed) in the future.

The new leadership will shape the development of the US economy - the world's largest economy - until after the end of Biden's tenure, because the Fed controls the money supply, part of the financial market regulator and the key interest rate.

Because of the role of the US dollar as the global reserve currency for reserves, credit and trade, the replacement of the Fed's top leadership will also have global consequences.

Decision by the end of next week

It is about the replacement of the executive chair from February and about several positions in the seven-member Central Bank Council. Biden wants to decide by the end of next week at the latest. The Democrat could take it easy: he could nominate Fed Chairman Jerome Powell, who was appointed by his Republican predecessor Donald Trump, for a second term. The 68-year-old Powell, a lawyer and ex-investment banker, has been a member of the Central Bank Council since 2012 and has also served as its chairman since February 2018. While Powell is politically imputed to Republicans, it would arguably be a relatively safe choice for Biden. Continuity at the top of the central bank should also be received positively by the markets.

Politically, however, the decision is trickier. Many more leftist Democrats are pressuring Biden not to give Powell a second term. Influential Senator Elizabeth Warren, for example, has criticized Powell's loosening of banking regulation, calling him a "dangerous man". In addition, Biden has promised his voters to place more women, members of minorities and people from immigrant families in the top positions. He wants to ensure that the institutions also reflect the diversity of the country.

Biden's alternative would be Lael Brainard, who has a doctorate in economics and has been a member of the Central Bank Council since 2014.

She was once nominated by Democratic President Barack Obama and would be the favorite of Powell's left-wing critics.

Her nomination would hardly upset the markets, especially since she has been a central banker for years and has supported most of the decisions.

With critical dissenting opinions, she was particularly noticeable when it came to the relaxation of banking regulation.

If nominated, the 59-year-old could become only the second woman to head the Fed.

Biden could announce major renovations

Because several positions are open on the Central Bank Council, Biden could announce a major restructuring that would enable him to do both: with Powell as head, ensure continuity and at the same time promote Brainard and other Democrats.

Biden could, for example, nominate Brainard as vice chairman of the Fed or give her the bank regulation department.

Biden's nominations must then be confirmed by the Senate.

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Biden's Treasury Secretary Janet Yellen - who was the first female Fed chief under Obama - recently said repeatedly that Powell did a “good job” at the helm of the central bank, especially with regard to crisis management during the Corona crisis. Many observers interpreted this as support for Powell. At the same time, Yellen also stressed on Sunday that the president had to choose someone “who is experienced and credible and there are a number of candidates”.

The new Fed leadership faces major challenges.

The course of extremely loose monetary policy initiated because of the Corona crisis must be carefully scaled back.

Added to this is the problem of inflation, which has been significantly higher for months than the Fed's medium-term target of two percent.

In October, the annual inflation rate even rose to 6.2 percent.

Fed: Higher inflation is a consequence of the pandemic

The Fed continues to believe that higher inflation is primarily a temporary phenomenon as a result of the pandemic.

High energy prices, problems with global supply chains and the shortage of certain products such as computer chips are also cited as reasons for the rise in inflation.

Cars and gasoline are just as affected by the price increases as are many everyday products, including meat and eggs.

Rental costs are also rising - there is a threat of a price spiral.

The Fed is committed to the goals of price stability and full employment.

If price pressure does not subside, sooner or later the central bank will have to intervene to lower the inflation rate again.

To do this, it could raise the key interest rate - but this could also slow down the economic upturn.

Inflation is dangerous for Biden, as many people also blame the government for the rising prices.

In surveys, a majority is dissatisfied with Biden's economic policy.

If the independent Fed were to crack down too hard on inflation, the economy and the economy would suffer.

That could ruin Biden and his Democrats' chances in the congressional elections in a year's time.

In the long term, the decision to head the Fed could also have an impact on Biden himself: he needs a good economic record to be re-elected in three years.

dpa