Powell and his colleagues have been applying a new policy framework — announced at Jackson Hole last year — which alters a previous approach of raising interest rates to contain inflation based on expectations for job and economic growth rather than outcomes. Investors have been debating the appropriateness of the strategy at a time of major pandemic-triggered disruptions to supply chains and the job market. Putting a new Fed chief in place in February could heighten uncertainty in markets.
“Monetary policy is at a critical juncture,” Deutsche Bank AG economists led by Peter Hooper, who previously worked at the Fed, wrote in a note to clients this month. Replacing Powell with someone more dovish “could prove counterproductive, as it could lead to an increase in perceived inflation risks, higher bond yields and weaker risk sentiment — all of which would delay the return of the economy to its pre-pandemic state.
Several other openings are pending on the governing board, giving Biden a chance to put his stamp on the Fed and remake it after Trump’s five picks. The most recent readings remain elevated: the consumer price index rose 5.4% in the 12 months through July, though it fell from the previous month for the first time since November.