Jerome Powell Confirmed as Fed Chair to Face Inflation Challenge

It would seem like a pretty good time to take over as chairman of the Federal Reserve.

Jerome Powell has won Senate confirmation to head the U.S. central bank, inheriting an economy on a roll, a booming stock market and unemployment at a 17-year low.

He will succeed Janet Yellen, the first woman to serve as Fed chairman, when her term ends on Feb. 3. The position is considered the government’s most power economic job.

But while the immediate horizon appears clear, Powell faces the risk that today’s sturdy economy, low inflation and rising stock market could reverse course in the coming months or years, forcing him to come up with the right remedies.

One of the biggest threats could come from inflation, which over the past six years has been extremely low. Some forecasters, however, worry that the days of benign inflation readings could be coming to an end, especially if tight labor markets lead to accelerating wage gains.

There is also the concern that the stock market, which has been soaring to record highs, could get thrown into reverse if investors begin to worry about rising interest rates.

Yellen and other Fed officials have emphasized that they hope to remain on a course of gradual rate hikes but they have warned that if inflation does start to accelerate, they may be forced to apply the brakes more forcefully by raising interest rates more quickly.

That is the type of scenario that in the past has brought an end to economic recoveries. And this expansion is already the third longest in U.S. history. But for the moment, those threats remain just that — threats. In fact, some Fed officials are not convinced that inflation is on the verge of picking up steam and in fact, they have argued that the central bank may need to slow down rather than accelerate its rate hikes.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza