With a new president in office, many people are watching to see who Joe Biden picks to fill key Cabinet positions. But that shouldn’t be the only position to keep an eye on: The chairman of the federal reserve could have just as much impact on America’s economic future as the Secretary of State or the President himself.
The chair of the Fed is the most important economic power in the country, and it’s a position that requires careful selection. The chair of the Fed has far-reaching effects on interest rates, inflation, and overall economic stability. The chairman of the Fed is not a ceremonial figure, but a highly active executive who leads the Federal Reserve Board in pushing for maximum employment, stable prices, and moderate long-term interest rates.
In addition, the Fed sets short-term interest rates, which affect what businesses and consumers pay for loans and the returns savers receive on their bank deposits or money market mutual funds. The Chairman also oversees the Federal Open Market Committee, a group of 12 members who meet eight times per year to determine monetary policy, and those meetings are highly watched by the world’s financial markets.
While the Fed is considered an independent central bank, it’s subject to congressional oversight and must work within the general goals of the government. The president appoints the chair of the Fed, and the nominee must be confirmed by the Senate. During the confirmation process, the nominee appears before the Senate Banking Committee to answer questions about their qualifications, views on monetary policy, and plans for addressing economic challenges.
Once appointed, the chairman serves a four-year term, and can be reappointed to multiple terms. During his or her term, the chair of the Fed testifies before Congress twice a year on issues that include the Fed’s monetary policy and objectives. The chairman also meets regularly with the treasury secretary, who is a member of the president’s Cabinet.
The last chairman to serve a full term was Janet Yellen, who was replaced in 2018 by Jerome Powell. Yellen was nominated by former President Obama and confirmed by the Senate, and is widely credited with keeping interest rates low to support growth during the economic recovery after the Great Recession.
When it comes to picking the next chair of the Fed, most observers are looking for someone with similar views on monetary policy to Yellen. A businessman and financier, Powell is seen as more of a traditionalist than the more liberal Yellen was, and has vowed to continue her predecessor’s path toward gradual interest rate hikes. He also seems to have the support of the White House, where Trump has said he would like to see him serve another term. That makes Powell the favorite to be reappointed.