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Federal Reserve Chair Jerome Powell. Photo: Graeme Jennings-Pool/Getty Images

Federal Reserve Chair Jerome Powell faced a Senate confirmation hearing for a second term leading the central bank Tuesday. It showed the exceptionally difficult political balancing act the Fed will face in the coming years.

Why it matters: Powell appears on track to be confirmed, but if so his second term will involve a gantlet of political and economic cross-pressures.

The big picture: Opening statements from Senate Banking Comittee Chair Sherrod Brown (D-Ohio) and Ranking Member Pat Toomey (R-Penn.) showed the ways the Fed finds itself in the middle of fraught political disputes.

  • Brown urged the Fed to generate a hot labor market that generates gains for workers, focuses on diversity and racial equality and uses its powers to try to contain the risks of climate change.
  • Toomey argued the Fed should move aggressively to rein in inflation, and attacked Fed regional banks for engaging on racial justice and climate issues.

What they're saying: "The troubling politicization of the Fed puts its independence and effectiveness at risk," said Toomey. "So let me be clear: If this politicization continues unchecked, it will not end well for the Fed"

Between the lines: Powell is a savvy political operator who is skilled at building bridges across partisan lines — as reflected in his appointments by Presidents Obama, Trump and Biden.

  • Toomey said he will vote to confirm Powell despite misgivings about the direction of the Fed, as have a handful of other Republican senators. That smoothes the path to confirmation even with "no" votes from the left flank of the Democratic caucus.

What's next: Lael Brainard, Biden's nominee to be vice-chair of the central bank, faces a confirmation hearing on Thursday in which she is likely to face more pointed attacks on her role pushing the Fed to regulate the banking system more aggressively and focus more expansively on climate risk.

The bottom line: For Powell, confirmation looks like the easy part. The hard part will be guiding the Fed through the next four years as Democrats and Republicans have opposite visions for what it ought to do.

Go deeper

What Biden's Fed nominations mean for policy

Sarah Bloom Raskin at a 2013 hearing. Photo: Andrew Harrer/Getty Images

Now that President Biden's long-awaited nominations for vacant seats on the Federal Reserve Board of Governors have dropped, the big question is how Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson, if confirmed, might shift policy.

  • The answer: Don't expect any big changes to the central bank's policy direction overnight — but do expect it to prioritize a healthy labor market more in the years ahead.

Why it matters: The Fed's actions shape the economy in ways that outlast the presidents who appoint them — and the Biden-appointed Fed looks to be a more explicitly pro-worker central bank than we've seen in modern times.

The big picture: With inflation running hot, the Fed is in the midst of a pivot to more hawkish monetary policy — possibly including raising interest rates in March.

  • Raskin, Cook, and Jefferson are unlikely to stand in the way of that pivot, and not just because the slow-moving Senate confirmation process means it will likely be well underway before they are confirmed for their new jobs.
  • The Fed is a consensus-driven institution, and the consensus has swung decisively in a hawkish direction in the last three months. Even normally-dovish officials like San Francisco Fed President Mary Daly and Chicago Fed president Charles Evans on board with the policy shift.

But over time, the new additions to the Board of Governors — who have a permanent vote on monetary policy, unlike regional Fed presidents who rotate — have emphasized the importance of running a hot labor market in order to achieve gains for workers and greater racial equality.

  • That implies the three new governors would resist continuing to push interest rates higher once inflation moderates.

What they're saying: "Inflation is so high and political pressures on the Fed are so strong (including from Democrats), that we doubt they will push hard against the will of the committee," wrote Roberto Perli and Benson Durham of Cornerstone Macro, in a client note.

  • But, they add, "Because all of them have expressed views in favor of broader expansion of the labor market, … we can expect them to resist substantial tightening in the future."

Regulatory policy is a different matter. If confirmed as vice chair for supervision — and Republican Senators will try to stop that from happening — Raskin would have more explicit power over a wide range of regulatory policy, and look to rein in the deregulatory impulses of her predecessor, Trump appointee Randal Quarles.

The bottom line: As the Biden Fed takes shape, it will include more voices focused on workers than in modern memory. But the course of policy depends on whether inflation trends allow them to act on those instincts.

Rising mortgage rates could slow house price surge

Chart: Axios Visuals

Mortgage rates have jumped to their highest level since early 2020.

Why it matters: The rising cost of home loans could slow the booming American market for residential real estate.

Updated 15 mins ago - Energy & Environment

Bomb cyclone prompts blizzard warnings from Virginia to Maine

Computer model projection showing the intense storm off of Cape Cod on Jan 29, 2022, with heavy snow and strong winds lashing the coastline. (Weatherbell.com)

Blizzard warnings are in effect for 11 million people from coastal Virginia to eastern Maine as a potentially historic winter storm is set to slam the Mid-Atlantic and Northeast beginning Friday.

Why it matters: The storm will bring hazards ranging from zero visibility amid hurricane force wind gusts and heavy snow, to coastal flooding that will erode vulnerable beaches and threaten property from the Jersey shore to coastal Massachusetts.

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