US President Joe Biden has elected to reappoint Jerome Powell as the Chairman of the Federal Reserve for his second term. The 68-year-old economic advisor, lawyer, and former investment banker will be faced with navigating the challenges faced by the world’s biggest economy.

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The reinstatement by the Biden administration shows the continued belief in the current policies of the Federal Reserve, which has elected to keep interest rates at near-zero percent despite the record-high inflation that is currently rocking the country.

“I’m confident that Chair Powell and Dr (Lael) Brainard’s (vice-chairman) focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before. Together, they also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system,” Biden in a statement.

Powell’s crown of thorns

While the Federal Reserve under Powell was instrumental in preventing the collapse of the US economy during the early months of the pandemic, when the US faced its largest unemployment crisis in decades, his road ahead is not easy.

The main challenge that he faces in his second term would be balancing the red hot inflation while ensuring full employment and a steady economic recovery. Despite urgings from many, the Fed has not increased interest rates mostly to ensure that the benefits of economic recovery are conferred to a broader section of society while also trying to ensure that as many Americans as possible are re-employed.

Also read: What Jerome Powell's renomination as US Fed chair means for crypto

"It's extremely important that we get that right," Powell said recently at a conference sponsored by the South African Reserve Bank. "I am confident that we will do so over the course of the next year or so. I think in the meantime, it's going to be extremely challenging, certainly in the short term."

But if the inflation proves to be not “transitionary,” as the Fed has often taken to labelling it, then Powell would be in charge of ensuring that he can quickly navigate the machinery of the most powerful central bank in the world to prevent the erosion of its citizen’s wealth.

At the same time, Powell has to deal with increasing criticism from different sections of society. Many American business leaders have expressed their doubt in the ability of the Fed to deal with the rising inflation, with naysayers like Jack Dorsey even cautioning against impending hyperinflation in the country.

Powell would need to earn back the trust of the American corporate hegemony, as well as critics on either side of the political spectrum, to continue leading the US into a strong economic recovery.

Also read: Dollar rises on Powell renomination, euro hurt by COVID lockdowns

A recent ethics controversy about former Fed chairmen actively trading at a time when the central bank was heavily involved in security markets and criticism against watering down of banking regulations have only increased the pressure on Powell.

"We have to have the complete trust of the American people that we're working in their interest all the time," Powell said when introducing stricter laws on Fed employees trading.

A strong economic recovery is not only vital for the future of President Biden and his Democratic Party’s political prospects but also an important yardstick of competition against the US’s foremost emerging rival, China.

“There are two institutions in Washington for which appointments are sacred: one is the Supreme Court and the other is the Fed,” Peter Hooper, who worked at the Fed for almost three decades, told FT.

Also read: Risks to US financial system ease as economy recovers: Federal Reserve

(Edited by : Shoma Bhattacharjee)