Aurelia Butler

WASHINGTON (Reuters) – U.S. President Joe Biden cited unprecedented pressure that former President Donald Trump directed at Federal Reserve Chair Jerome Powell as one reason to renominate him on Monday.Bucking critics in his own Democratic party, Biden said the Republican appointee’s independence made him the best choice to lead the U.S. central bank with Lael Brainard, who had also been under consideration for the top job, as vice chair.Biden laid out his reasoning for his decision during remarks to reporters that included multiple references to the chairman by the first name “Jay” that he is also known by.”We need stability and independence at the Federal Reserve. Jay has proven the independence that I value in .. the Fed chair,” Biden said. “In the last administration, he stood up to unprecedented political interference and, doing so, successfully maintained the integrity and credibility,” of the Fed, Biden said.Trump in tapping Powell for the post in 2017 became the first president since Democrat Jimmy Carter not to reappoint a Fed chief installed by his predecessor and then quickly soured on his choice. Within months https://www.reuters.com/markets/us/powells-rollercoaster-ride-fed-enemy-economic-savior-2021-11-22 of Powell taking the helm in February 2018, Trump began regularly castigating him in public as Powell continued with a slate of interest rate increases begun under former chair Janet Yellen. Trump believed Powell was not doing enough to boost the economy https://www.reuters.com/article/us-usa-fed-trump-reaction/trump-says-feds-powell-let-us-down-on-interest-rate-decision-idINKCN1UQ2PK and, along with it, Trump’s political prospects, and explored firing him. The episode was seen as one of the most significant threats to the central bank’s independence in a generation.Biden’s commitment to the Fed’s independence is likely to be tested in the coming months. Expectations are building in financial markets that the Fed will be forced to address high inflation with as many as three interest rate increases over the course of next year. These hikes could slow the pace of the economy and the job market’s recovery, results that could hurt Biden politically.Biden noted that Powell was confirmed to the position of Fed chair by 84 votes in the 100-member U.S. Senate in 2018.”I believe that having Fed leadership with broad bipartisan support is important, especially now,” with such a “politically divided” nation, Biden said.”I believe we need to do everything we can to take the bitter partisanship of today’s politics out of something as important as the independence and credibility of the Federal Reserve,” he said. More

UNITED NATIONS (Reuters) -The United Nations on Monday pushed for urgent action to prop up Afghanistan’s banks, warning that a spike in people unable to repay loans, lower deposits and a cash liquidity crunch could cause the financial system to collapse within months.In a three-page report on Afghanistan’s banking and financial system seen by Reuters, the U.N. Development Programme (UNDP) said the economic cost of a banking system collapse – and consequent negative social impact – “would be colossal.”An abrupt withdrawal of most foreign development support after the Taliban seized power on Aug. 15 from Afghanistan’s Western-backed government has sent the economy into freefall, putting a severe strain on the banking system which set weekly withdrawal limits to stop a run on deposits.”Afghanistan’s financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing,” the UNDP report said.Finding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders. “We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban,” Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters. “We are in such a dire situation that we need to think of all possible options and we have to think outside the box,” he said. “What used to be three months ago unthinkable has to become thinkable now.”Afghanistan’s banking system was already vulnerable before the Taliban came to power. But since then development aid has dried up, billions of dollars in Afghan assets have been frozen abroad, and the United Nations and aid groups are now struggling to get enough cash into the country.The United States is working with the United Nations, UNDP and other international institutions and countries “to find ways to offer liquidity, to infuse, to see to it that the people of Afghanistan can take advantage of international support in ways that don’t flow into the coffers of the Taliban,” said State Department spokesman Ned Price.’UNDER THE MATTRESS’The UNDP’s proposals to save the banking system include a deposit insurance scheme, measures to ensure adequate liquidity for short- and medium-term needs, as well as credit guarantees and loan repayment delay options. “Coordination with the International Financial Institutions, with their extensive experience of the Afghan financial system, would be critical to this process,” UNDP said in its report, referring to the World Bank and International Monetary Fund.The United Nations has repeatedly warned since the Taliban took over that Afghanistan’s economy is on the brink of a collapse that would likely further fuel a refugee crisis. UNDP said that if the banking system fails, it could take decades to rebuild.The UNDP report said that with current trends and withdrawal restrictions, about 40% of Afghanistan’s deposit base will be lost by the end of the year. It said banks have stopped extending new credit, and that non-performing loans had almost doubled to 57% in September from the end of 2020.”If this rate continues of non-performing loans, the banks may not have a chance to survive in the next six months. And I am being optimistic,” al Dardari said. Liquidity has also been a problem. Afghan banks heavily relied on physical shipments of U.S. dollars, which have stopped. When it comes to the local afghani currency, al Dardari said that while there is about $4 billion worth of afghanis in the economy, only about $500 million worth is in circulation.”The rest is sitting under the mattress or under the pillow because people are afraid,” he said.As the United Nations seeks to avert famine in Afghanistan, al Dardari also warned about the consequences of a banking collapse for trade finance. “Afghanistan last year imported about $7 billion worth of goods and products and services, mostly foodstuff … If there is no trade finance the interruption is huge,” he said. “Without the banking system, none of this can happen.” More

Joe Biden has nominated Jay Powell to serve a second term as chair of the Federal Reserve, opting for continuity at a delicate moment for the US economy as it confronts persistently high inflation and a patchy labour market recovery.Lael Brainard, considered Powell’s main competitor for the top job, was selected for the role of vice-chair, a position at present held by Richard Clarida. Biden praised Powell’s response to the coronavirus pandemic, his commitment to the Fed’s goals of full employment and stable prices, and his defence of the central bank’s “integrity and credibility” during the administration of Donald Trump. “We’re in a position to attack inflation from a position of strength, not weakness,” Biden said.The decision ends months of speculation about the Biden administration’s appetite to reshape the Fed. It comes as the central bank debates how to fine-tune monetary policy in the face of supply-related disruptions and mounting inflationary pressures. Both Powell and Brainard vowed to fight high prices. “We know that high inflation takes a toll on families . . . We will use our tools both to support the economy and a strong labour market, and to prevent higher inflation from becoming entrenched,” Powell said. Brainard added that she was committed to “getting inflation down at a time when people are focused on their jobs and how far their pay cheques will go” as well as “supporting a growing economy that includes everyone”. This month, the Fed began winding down its monthly $120bn asset purchase programme, with an intention to end the stimulus altogether next summer.But recent inflation data, which showed US consumer price growth jumping at the fastest pace in roughly three decades last month, has raised the prospect that the Fed will have to discard its patient approach to monetary policy by accelerating the “taper” of the bond-buying programme before swiftly raising interest rates multiple times next year.Biden did not appoint anyone for the handful of vacant spots on the Fed board, including vice-chair for supervision, which is responsible for banking regulation. The White House said those appointments would begin in early December.Powell, 68, was elevated to Fed chair by Trump in 2017 after serving as a governor from 2012 and once worked as a top Treasury official under George HW Bush. He was viewed as the least controversial choice for Biden, particularly as Powell’s broad bipartisan support is likely to ease the passage of his confirmation process through the Senate.Powell’s backers also made the case that at a time of such pronounced economic uncertainty, a leadership change could generate unnecessary market volatility.Having led the central bank’s response to the pandemic, Powell won plaudits for preventing more extreme market panic and steering the US economy through one of its worst contractions.In sticking with Powell, a Republican, Biden disregarded progressives’ criticism of the incumbent’s record on regulation, which caused what they said was a dilution of post-financial crisis rules for the biggest financial institutions.Elizabeth Warren, the leftwing Democratic senator from Massachusetts, said she opposed Powell’s renomination and would vote against him. But she said she backed Biden’s nomination of Brainard as vice-chair. “Powell’s failures on regulation, climate and ethics make the still-vacant position of vice-chair of supervision critically important,” she said.

Brainard opposed easing capital and liquidity requirements for US banks during Powell’s tenure, as well as modifications to Volcker rule guidelines on proprietary trading.After the announcement, a closely watched market measure of interest rate expectations, eurodollar futures, indicated that at least three quarter-point interest rate rises were being fully priced in by December 2022. The two-year Treasury yield, which moves with interest rate expectations, rose to its highest level since March 2020. Biden’s picks will need to be confirmed by the Senate. Early comments from lawmakers suggested that Republicans would largely back Powell’s renomination.Pat Toomey, the top Republican on the Senate banking committee, said he would support Powell’s confirmation but was less firm in his support for Brainard, saying he had “concerns about regulatory policies that Governor Brainard would support”. His comments were echoed by Kevin Cramer, another Republican on the banking committee.Biden’s pick adheres to the rarely broken tradition of reappointing an existing Fed chair to the job during a president’s first term in office — a nod to policymaking continuity and the independence of the central bank.Barack Obama reappointed Ben Bernanke as Fed chair in 2009, while Bill Clinton did the same with Alan Greenspan in 1996. But Trump broke the mould four years ago when he picked Powell rather than give Janet Yellen a second term.Additional reporting by Kate Duguid and Lauren Fedor More

Boris Johnson’s Brexit negotiating strategy over Northern Ireland has been thrown into confusion after a cabinet minister ruled out a full scale confrontation with the EU before Christmas.Anne-Marie Trevelyan, the UK’s international trade secretary, said it was “absolutely not” Britain’s intention to trigger the Article 16 process, which overrides post-Brexit trade arrangements in Northern Ireland, in the coming weeks.Her comments confirmed an FT report last week that ministers wanted a Christmas “truce” to give UK and EU negotiators time to try to strike a compromise over the border arrangements in Northern Ireland.“I don’t think anyone’s calling Article 16 before Christmas, absolutely not,” she told the Daily Telegraph. Trevelyan’s comments undermine the position of Lord David Frost, the UK’s Brexit minister, who has insisted the government stands ready to activate Article 16 at any time, and maintains that it is “on the table”.Trevelyan suggested the government expected Frost and his EU counterpart Maros Sefcovic to carry on talking for a while yet, saying they “will plod on doing the work that negotiators do”.Negotiations are continuing between the two sides to try to soften the application of the so-called Northern Ireland protocol, the part of the Brexit deal that deals with trading relations in Northern Ireland.The protocol left Northern Ireland in the EU’s single market for goods in order to prevent the return of a north-south trade border on the island of Ireland, but it means there are some checks on trade between Great Britain and the region.“Our preference remains to agree a negotiated solution if we can,” said a Downing Street spokesperson. “Of course we will use Article 16, the safety mechanism, if solutions cannot be found.”Asked directly if the government was willing to trigger Article 16 before Christmas, the spokesperson appeared to repudiate Trevelyan’s words, saying: “Well, I am not going to put a timetable on it.” Separately, at a hearing of parliament’s public accounts committee, Richard Ballantyne, chief executive of the British Ports Association, said ports were preparing well for the introduction of full checks on EU imports from next July.Ballantyne said there “should be sufficient capacity in terms of physical space”, but added there were “reservations” about whether there would be enough vets and other officials to carry out the checks.“If government officials, departments and agencies started wanting to pull in over 90 per cent of goods for various checks, then you’d run into a capacity issue,” he told MPs.Meanwhile Nigel Farage, former Brexit party leader, said he was considering a political comeback in the wake of the continuing migrant crisis in the English Channel, but added that his “gut instinct” was not to do so.Farage is now a presenter on GB News. However, Tory MPs worry that at some point an anti-immigration party to the right of the Conservatives could re-emerge to channel public frustration on the migration issue. More

The policy differences between Jay Powell and Lael Brainard — the only names on Joe Biden’s shortlist for Federal Reserve chair — are narrow. The president was nevertheless sensible to prioritise continuity over change by renewing Powell for a second term. It is doubtful that picking Brainard would have had much impact on the speed with which the Fed plans to tighten in the near future, though the markets see her as mildly more dovish than Powell.Either way, the Fed will start to withdraw its $120bn-a-month quantitative support for the US economy from next month, while futures markets have priced in two interest rate rises in 2022. Facing a potentially hazardous turning point for markets and the economy, Biden chose wisely. Together with Powell’s reappointment, Brainard’s elevation to vice-chair gives the impression of continuity in monetary policy with a more robust approach to regulation.The Democratic left is unhappy with Biden’s decision, nonetheless. The gap between Powell and Brainard is far wider on bank regulation than on monetary policy. Elizabeth Warren, the Massachusetts senator, has called Powell “a dangerous man” for loosening capital and liquidity restrictions on US banks — moves that Brainard usually opposed. But political reality suggests the left’s disaffection will only improve the chances of a timely Powell confirmation in a 50:50 Senate. Powell was elevated to the role by Donald Trump in 2018. Though he is a Republican, he resisted bullying by Trump before the pandemic to keep interest rates low in a heating economy. This implies Powell will have the necessary grit to withdraw the Fed’s extraordinary accommodation as Covid-19 recedes. Biden is likely to appease the left by picking Democrats to fill the three Fed vacancies, including the vice-chair for supervision. In addition to his confirmation, Powell will face two big challenges. The first is to control US inflation which, at 6.2 per cent last month, is at its highest in more than three decades. The Fed has consistently argued that this is a “transitory” problem caused by temporary disruption to the global supply chain. That may be so — and there are signs some of the bottlenecks may be coming unstuck. But the Fed has been late to recognise the breadth of goods shortages and the ensuing inflation risk.It may need to shift more quickly than planned. The tapering of asset purchases, which are scheduled to end by next June, may have to happen more rapidly. The risk that higher inflation expectations might become anchored in the real economy is non-trivial. Modest tightening now could save the need for more severe contraction later.The second challenge will be over the Fed’s widening remit, particularly on climate change. Powell has said global warming should be tackled by other government agencies. Brainard has been more receptive to Fed regulation of carbon financing. Biden’s statement stressed both Powell and Brainard “share my deep belief that urgent [Fed] action is needed”. This implies Powell has shifted his stance closer to what the European Central Bank and the Bank of England are doing. Indeed, the ECB on Monday warned European banks could “eventually” face higher capital charges if they failed to take climate risk seriously. Such central bank thinking ought to be welcomed. But the political reaction, especially in the US, could be fissile. The Republican right will see Powell’s shift as a reason to vote against his nomination. Yet the majority of Democrats, and some Republicans, are likely to carry him over the line. A bipartisan confirmation would be good news for the Fed, and for the US economy. More

Joe Biden’s decision on Monday to pick Jay Powell for a second term as chair of the Federal Reserve has long seemed a natural outcome for a president seeking a steady hand at the helm of the US central bank in the face of a series of economic challenges.But Powell’s path to another four-year stint as Fed chair was far from straightforward: he had to overcome a serious challenge from Fed governor Lael Brainard, a trading scandal that has rocked the central bank in recent months, and attacks from progressives over his record on financial regulation.Powell’s passage through the final Senate confirmation process is expected to be relatively smooth, since he has backing from a large chunk of Democrats and Republicans in the upper chamber.But he will, nonetheless, confront significant challenges as he embarks on four more years as America’s top monetary policymaker — chiefly, how to manage an economy that is not back to full employment at a time of uncomfortably high inflation.“If this time next year inflation is a serious problem, the Fed is in a hurry to tighten [monetary policy], and markets are distrustful . . . then Powell’s legacy is going to be compromised,” said Vincent Reinhart, who worked at the central bank for more than 20 years. “In a sense we are going to rewrite his history.”Although Biden chose Powell for the Fed chair position, he tapped Brainard for the vice-chair role, and cast them as a team that would together pull the monetary levers of the US economy. When Powell was first tapped to lead the Fed by Donald Trump in 2018, he was seen as an improbable pick — a “historical accident”, according to Peter Conti-Brown, a Fed historian at the University of Pennsylvania.Powell, a lawyer by training without an economics doctorate, ascended to the job only when Trump soured on the sitting chair, Janet Yellen. The Republican was originally appointed by Barack Obama to the Fed’s board in 2012, at which point he had not worked in government in the almost two decades since he held a senior Treasury position in George HW Bush’s administration. Powell’s renomination by a Democratic president and in the face of intense progressive opposition is a significant coup for Powell. “He has shown himself to be a nimble central banker and not tied unduly to dogma or ideology,” said Conti-Brown.Powell with former president Donald Trump in 2017. Trump, who once asked whether Powell or China’s Xi Jinping was the bigger enemy to the US, jettisoned the belief that the White House should stay out of monetary policy affairs © Drew Angerer/GettyThe economic collapse caused by the pandemic in 2020, and the policy response that followed in its wake, cemented Powell’s place in the cadre of celebrated Fed chiefs.“The Fed was at its best in March 2020,” said Jeremy Stein, a Harvard academic who was nominated by Obama alongside Powell to serve on the Fed’s board of governors in 2011.“Powell had his Draghi moment and he met it in every way,” Stein added, referring to the pivotal moment in the eurozone crisis when then-president Mario Draghi of the European Central Bank pledged to do “whatever it takes” to save the single currency.As the US shut down in early 2020 and millions of jobs suddenly evaporated, the Fed reacted swiftly. Within days, the central bank slashed interest rates to zero, intervened aggressively in US government bond markets and unveiled a number of new emergency facilities.“He took our playbook from 2008-09 and he implemented that and doubled down on it,” added Donald Kohn, who served as the vice-chair of the Fed in the midst of the 2008 global financial crisis. “He went all-in and invented new things.”A momentous shift in the way in which the central bank thinks about setting monetary policy, which Powell unveiled in August 2020, further underscored the transformational nature of his tenure.Rather than raise interest rates at the first hint of price pressures, as the Fed had done in the aftermath of the global financial crisis, the central bank pledged to run the economy hot in a bid to produce a more substantial recovery that benefited a broader group of Americans.In practice, it has meant keeping interest rates at today’s near-zero levels until inflation averages 2 per cent and the Fed achieves maximum employment.“Jay Powell has framed monetary policy in as inclusive a way as ever in Fed history,” said Reinhart, who is now chief economist at Mellon.“That implies that Fed officials are no longer cloistered in the temple. People understand the Fed better and appreciate the Fed more,” he added.But some Fed-watchers and former officials warn that Powell may have to burn much of the political capital he accumulated in recent years if inflation is a bigger problem than anticipated and the central bank is compelled to take steps to tame it.“This is one of the most challenging periods for the Fed in decades,” said Randall Kroszner, who served as a Fed governor between 2006 and 2009. “There will be extraordinary levels of pressure on both sides: critics will say the Fed is forgetting about its inflation mandate and others will say they are not doing enough to support growth and job creation,” he added. “We hear both of those criticisms now and that will only intensify.” There are already signs that the Fed could move to tame inflation more quickly than expected, with a top official at the central bank last week opening the door to a quicker wind-down of its huge bond-buying programme, a possible precursor to earlier interest rate rises. Alan Blinder, who previously served as vice-chair of the Fed, said that, barring another serious wave of Covid-19 cases in the coming months, the US central bank is likely to accelerate the “taper” and raise interest rates sooner.With a penchant for speaking plainly, Powell has established himself as a different kind of central banker. “He is a better communicator than any Fed chair that I know of,” said Claudia Sahm, a former Fed economist and senior fellow at the Jain Family Institute.Those skills were tested long before coronavirus reached US shores last year, as Trump stepped up his attacks on his own nominee.Powell with Mark Carney, then governor of the Bank of England, in 2019 © David Paul Morris/BloombergThe former president — who once asked whether Powell or China’s Xi Jinping was the bigger enemy to the US — jettisoned the long-held belief that the White House should stay out of monetary policy affairs. Instead, Trump heaped pressure on the chair to reverse a series of interest rate increases that Powell had presided over in 2018 to advance a tightening cycle that started under Yellen.More recently, progressive Democrats have criticised what they say has been a rolling back of critical post-financial crisis regulations under Powell’s leadership, tipping the scale towards looser capital requirements, less arduous stress tests and lighter trading restrictions for the biggest banks.“With monetary policy, Powell has done an outstanding job in putting the focus on employment, but he has done a sub-par job on actually putting the attention that needs to be there on financial regulation,” said Kathryn Judge, a professor at Columbia University with expertise in financial regulation. Elizabeth Warren, the senator from Massachusetts, went so far as to call Powell a “dangerous man”.A trading scandal that erupted in September after senior officials were found to have been active investors last year when the Fed was aggressively propping up financial markets further emboldened his detractors.

Two regional bank presidents resigned in the aftermath and Powell moved decisively to tighten restrictions on personal investing, but some Fed watchers warn it will take time for the institution’s credibility to fully heal.For Republicans, the Fed’s credibility is also being tarnished by what senator Patrick Toomey of Pennsylvania calls “woke mission creep”, with several of the regional bank branches delving into topics such as racial disparities and climate-related risks.Powell has weathered many of these critiques with ease, however, thanks in part to robust bonds he has formed with Congressional members on both sides of the political aisle.“There are two institutions in Washington for which appointments are sacred: one is the Supreme Court and the other is the Fed,” said Peter Hooper, who worked at the Fed for almost three decades. “People have to have basic trust and faith in both, and it helps to have someone who is a moderate centrist and is admired for their performance by both sides of the aisle on Capitol Hill.”In his second term, Powell will advance the central bank’s goals with a revamped inner circle of Fed governors. While John Williams, president of the New York Fed, and Brainard as the new vice-chair will remain constants, he loses Richard Clarida and Randal Quarles, the two current vice-chairs. The White House said it would make additional appointments to the Fed board starting next month. Those roles will prove even more important as the central bank embarks on its next phase of tighter monetary policy in what is likely to be a challenging 2022. More