Challenges Facing the 2nd Term Powell Fed

Biden "Expecting Role in Climate Change Response"
Also Need to Clarify Position on Digital Currency Introduction
Diversity Enhancement Among Fed Members Remains a Task

Jerome Powell, Chair of the U.S. Federal Reserve (Fed)
[Photo by EPA Yonhap News]

[Asia Economy Reporter Byunghee Park] Jerome Powell's second term as Chair of the Federal Reserve (Fed) begins at a time when demands for change at the Fed are pouring in. The Joe Biden administration hopes that, in addition to the Fed's traditional policy goals of 'full employment' and 'price stability,' the Fed will play an active role in addressing climate change. The rise of cryptocurrencies like Bitcoin and the growing attention to digital currencies as new payment methods also present unfamiliar challenges for the Fed.

So far, Chair Powell has shown an ambiguous stance on central bank digital currencies (CBDCs). In contrast, newly appointed Vice Chair Lael Brainard holds the view that the issuance of a digital dollar by the Fed is inevitable.

Vice Chair Brainard pointed out that when President Biden's stimulus package provided $1,400 per adult earlier this year, the bottom 6% of the population had no bank accounts, making it difficult to distribute government aid. She argues that the lowest income groups are excluded from the existing banking system and that digital currency can help solve these problems.

However, if digital currency becomes widely used as a payment method, it could weaken the Fed's status. This is because the effectiveness of monetary policy through the Fed's control of benchmark interest rates could diminish. The potential weakening of the dollar's status as the global reserve currency is also a concern for the Fed. The Fed is expected to release a report on CBDCs soon.

Another challenge facing the Fed is responding to climate change. Chair Powell has been most criticized for not being proactive in addressing climate change alongside bank regulation. Democratic Senators Sheldon Whitehouse and Jeff Merkley issued a joint statement last week opposing Powell's reappointment, citing his insufficient response to climate change.

Addressing climate change is also one of President Biden's most important policy priorities. At the press conference announcing Powell's reappointment, President Biden expressed hope that the Fed would become a leader among central banks in tackling climate change.

Vice Chair Brainard has also voiced strong support for climate change action. She argues that climate-related risks should be incorporated into the Fed's annual stress tests of large banks' asset soundness.

With the reappointment of Chair Powell, a white male, criticism regarding the lack of racial and gender diversity at the Fed is expected to grow louder. Of the 17 Fed chairs to date, all but one?current Treasury Secretary Janet Yellen?have been white males. With one vacant Fed board seat and the resignation of Board Member Randall Quarles at the end of this month, President Biden is likely to nominate a candidate who reflects diversity for the open position.