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Powell's rollercoaster ride at the Fed: From 'enemy' to economic savior

·5 min read
FILE PHOTO: A screen displays the Federal Reserve Chair Powell on the trading floor at New York Stock Exchange (NYSE) in New York City, New York

By Lindsay Dunsmuir

(Reuters) - U.S. Federal Reserve Chair Jerome Powell, 68, renominated by President Joe Biden for a second four-year term as leader of the world's most powerful central bank, has been on a rollercoaster ride since he joined the institution almost a decade ago. Here are some of the highlights of his time at the Fed:

2012 -- APPOINTED AS PART OF AN OBAMA DEAL

Powell, a Republican former Wall Street investment banker and private equity executive, is nominated to the Fed's Board of Governors by President Barack Obama as part of a deal alongside Jeremy Stein, a Democrat, as a way to break a stalemate over Obama's appointments in the Republican-controlled Senate.

2013 -- ADVOCATE FOR WITHDRAWING STIMULUS

In his early days at the Fed, Powell argues forcefully for the central bank to start reducing its massive bond purchases undertaken to support the economy's recovery from the financial crisis, which had added $4 trillion to the Fed’s balance sheet. He wants the process to begin regardless of whether there is substantial improvement in the unemployment rate. Pressure from him and a two others on the Board forces Chair Ben Bernanke's hand into telling lawmakers the Fed would reduce its pace of purchases in coming meetings, which leads to months of market turbulence known as the "taper tantrum."

2017 -- POWELL BECOMES FED CHAIR

President Donald Trump jettisons bipartisan tradition and decides not to renominate Janet Yellen, a Democrat, as chair. Influenced by Treasury Secretary Steven Mnuchin, he elevates Powell, who is now viewed as a centrist at the Fed and enjoys good relations among both Republicans and Democrats in Congress, to replace her. "He's strong, he's committed, he's smart,” Trump says. The U.S. Senate votes to confirm him 84-13.

2018 -- TRUMP INSULTS BEGIN... AND NEVER END

In his first year as chair, Powell's Fed raises interest rates four times amid a strong economy and low unemployment. But in another departure from previous presidents, Trump frequently demands the central bank, which is self-funded and independent from the White House, change course and cut rates to zero or even introduce negative interest rates. As Powell reiterates the Fed's independence, Trump publicly calls those at the Fed "boneheads," and "pathetic" and threatens to fire Powell. In 2019, in the midst of a trade row with China, he compares Powell to Chinese leader Xi Jinping. "My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" Trump asks. Powell responds that he will not resign if Trump requests him to.

2019 -- POWELL'S ROCKY YEAR AMID BALANCE SHEET WOES

At the end of 2018, Powell sends markets tumbling when he implies the Fed's bond-shedding program is on auto pilot, a message he hastily walks back in January amid concerns the Fed is ignoring signs of a worsening economy. The Fed cuts interest rates three times in 2019 to forestall a slowdown fueled largely by the U.S.-China trade war.

The Fed's balance sheet policy comes under further scrutiny after a liquidity shortage in the $2.2 trillion repo market, which underpins much of the U.S. financial system, causes a surge in short-term borrowing costs in September. The Fed is forced to pump money in on an ongoing basis in its first major market intervention since the financial crisis.

2020 -- FED TO THE RESCUE AS COVID-19 PANDEMIC HITS

When the coronavirus pandemic hits, Powell acts swiftly, cutting interest rates to near zero and enacting a slew of emergency programs to prop up a cratering U.S. economy. He pledges open-ended Fed support and argues for unfettered fiscal spending. The Fed begins a $120 billion a month bond-buying program and stretches its remit further, offering open-ended credit to financial markets, first-ever purchases of corporate bonds, and loans to individual businesses. "We crossed a lot of red lines that had not been crossed before," Powell says in May, adding he has no regrets.

2020 -- FED CHANGES FRAMEWORK TO PRIORITIZE JOBS

In August, the Fed completes a two-year review of its framework, designed to promote maximum employment and financial stability. Under Powell, it reshapes its approach to monetary policy to emphasize employment growth, and a greater tolerance for higher inflation without raising interest rates. Powell also enshrines the concept of its employment goal as being broad-based and inclusive, in line with Powell's own view of "the benefits of a strong labor market, particularly for many in low- and moderate-income communities."

2021 - ETHICS SCANDAL ROCKS THE CENTRAL BANK

The usually staid institution experiences tumult with the departure of two regional Fed Bank presidents amid controversy over trades they made the previous year at a time when the central bank was heavily influencing the economy to try and nurse it through the pandemic, and senior officials were internally advised to adhere to a 'trading blackout' for several months. Critics cite the uproar as evidence of Powell's unsuitability for a second term. Six weeks after the scandal breaks, Powell announces the Fed will ban individual stock purchases by its senior ranks and unveils a broad set of other restrictions on their investing activities.

2021 - WHAT NEXT FOR FED'S MONETARY AND REGULATORY POLICIES?

In December 2020, Powell's Fed sets a bar of "substantial further progress" toward its full employment and 2% average inflation goals before reducing its bond-buying program, a goal it met by early November this year. The Fed has now begun the bond-buying taper, its first major move in bringing crisis-era policies to an end.

Elsewhere, the Fed's shift toward a more jobs-focused monetary policy is already competing with the persistence of higher-than-expected inflation, with investors now betting on an interest rate liftoff from near zero as soon as mid-2022.

As Powell looks to his next four years, the Fed will also have to grapple with other issues, such as determining if there is a need for tougher financial regulation, whether to issue its own digital currency and how to mitigate climate change risks as part of its supervisory role.

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci and Nick Zieminski)