By Veronika Dolar
In 2022, Powell will have to quickly decide what his top priority will be—with the specter of stagflation also emerging as a possible scenario.
Other issues on the chair’s agenda
The Fed is also responsible for fostering stability, integrity and efficiency of the nation’s monetary and financial system, mainly through regulation.
Financial bubbles are inflating in multiple markets from stocks to digital currencies—thanks in part to the Fed’s policy of easy money that has helped drive up prices. Inattention to financial stability was one reason the Fed missed the Great Financial Crisis until it was too late.
Powell will have to decide whether to make this a higher priority, particularly if the Fed lifts interest rates soon. Doing so could cause a market crash.
Finally, the Fed is facing pressure to tackle problems beyond its mandate, such as climate change and inequality. This is one of the main reasons Brainard was in the running in the first place.
Progressive Democrats and activists are urging the Fed to use its regulatory powers to restrict the flow of capital away from carbon-intensive industries and redirect the money toward more climate-friendly ones. This idea is controversial because it’s not in its mandate, it risks hurting Fed independence and could ultimately lead to misallocation of resources.
Similarly, Nobel Prize-winning economist Joseph Stiglitz and other liberals want the Fed to do more to fight inequality. Research shows that the Fed’s policies are contributing to wealth inequality .
While the Fed is probably not able to fix the issues of wealth and income inequality—these are complicated, complex issues requiring congressional action, new legislation or law enforcement—it could at least start to pay more attention to its actions so that it is not actively contributing to the problem.
Continuity or change
But the selection of the Fed chair isn’t the only way Biden will leave his mark on the central bank.
Over the next weeks, he has to fill three other open spots on the Federal Reserve’s board of governors , which provides him with an opportunity for a complete makeover and allows him to shift the Fed’s board toward a more Democratic-dominated one. And naming Brainard vice chair also furthers this agenda.
This may mean the Fed could still end up helping the Biden administration pursue progressive goals like fighting climate change and inequality, even with Powell at the top.
Either way, Americans would be wise to pay close attention to the Fed and who runs it.
Veronika Dolar is an assistant professor of economics at the State University of New York at Old Westbury .
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