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Photo illustration: Sarah Grillo/Axios. Photo: Brendan Smialowski-Pool/Getty Images

Jerome Powell’s second term as Federal Reserve chair will be defined by his response to the economy he helped create.

Why it matters: Powell's job will be harder in many ways than when the Fed was focused on just keeping the country afloat at the onset of the pandemic.

  • He now has to steer American consumers and investors into a new economy where everything is getting more expensive — including the cost of money. 
  • The chair and his team have to "thread a very small needle" to ease the U.S. out of a post-stimulus environment, Art Hogan, chief market strategist at National, tells Axios. 

Driving the news: During his Senate confirmation hearing today, Powell vowed to tamp down on the pace of inflation — which is cutting into wage growth.

  • He also faced questions about a stalled labor market.
  • The proportion of people who have a job or are looking for one remained unchanged again in December, and well below the rate pre-pandemic.

The big picture: The Central Bank faces a collision of two crises (inflation and the slow recovering labor market) that endangers economic growth.

  • High inflation has become "a severe threat to the achievement of maximum employment and to achieving a long expansion that can give us that [full employment]," said Powell.

Then: When Powell took over in 2018, the economy was stable, with inflation and GDP growth below their targets. 

  • Now: 84% of the jobs lost in March and April 2020 have been recovered, wages rose 4.7% last year and the economy in 2021 is expected to have grown at more than twice the annual rate of 2017.

What to watch: Tomorrow’s consumer price index reading from December is expected to show that prices rose more than 7% over the same month in 2020, adding onto the nearly 40-year record high.

The bottom line: "Prescribing the right medicine is always easier than weaning the patient off of it," says Hogan.

Go deeper

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.

Retail sales slipped a surprising 1.9% in December

Shoppers in San Francisco on Dec. 22. Photo: David Paul Morris/Bloomberg via Getty Images

Retail sales fell 1.9% in December compared to the previous month, suggesting that shoppers bought holiday gifts earlier last year as they faced rising inflation and supply chain issues.

Driving the news: The data is much lower than the 0% change predicted by economists, according to FactSet.

Ben Geman, author of Generate
Jan 14, 2022 - Energy & Environment

Biden's latest Fed pick signals brewing climate battles

Illustration: Sarah Grillo/Axios

President Biden's plan to tap Sarah Bloom Raskin as top banking regulator at the Federal Reserve could intensify the central bank's already growing focus on climate change.

Catch up fast: The news broke Thursday night that Biden will nominate Raskin, a Duke University law professor, for the powerful role of vice chair for supervision.