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Powell's Fed Era 2.0 Tees Up Tough Choices, Unforgiving Politics – BNN

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(Bloomberg) — Jerome Powell faces a plethora of politically tricky economic problems with little precedent in the Federal Reserve’s 107-year history now that he’s been tapped to lead the central bank for another four years.

The thorny topics crowding the Fed chair’s inbox run the gamut, from managing an economy coming out of a once-a-century pandemic to deciding whether to create a digital dollar. The stakes are high: a misstep on any of a number of fronts could upend the economic expansion and trigger a recession.

Read more: Biden Keeps Powell as Fed Chief, Names Brainard Vice Chair

“The Fed is facing the most difficult period in its history” since Paul Volcker was chair more than a quarter century ago, Bloomberg Opinion columnist and former central bank official Claudia Sahm said.

Making the job even tougher: A highly partisan political milieu in which the Fed is increasingly seen as no longer above the fray and in which its reputation has been besmirched by a trading scandal involving a few policy makers.

Overseeing the Economy 

This is always at the top of the inbox of any Fed chair. But what’s different this time is that the central bank is confronting a policy quandary not seen in decades.

Inflation is running well above the Fed’s 2% target, while the central bank is falling short of its maximum-employment objective. That’s a combination policy makers didn’t envisage when they adopted a new monetary policy framework in 2020 aimed at lifting inflation after years of below target price rises.

Amid the acceleration in price growth, the Fed looks on course to consider a more rapid drawdown of its mammoth $120-billion-per-month bond-buying program just weeks after it instituted a plan to scale the purchases back in a methodical manner.

Last week, Vice Chair Richard Clarida, Governor Christopher Waller and St. Louis Federal Reserve Bank President James Bullard signaled that the topic of a faster taper might be on the table when the Federal Open Market Committee meets Dec. 14-15.

A faster reduction in the so-called quantitative easing program would give policy makers an earlier opportunity to lift interest rates from near zero should they deem that necessary to keep the economy from overheating. 

Ensuring Financial Stability

The Fed’s super-lax monetary policy has encouraged investors to take on more risk and pushed stock, housing and other asset prices into the stratosphere. The result is what Fed staffers have called “notable” vulnerabilities that leave the financial system susceptible to breakdown.

The explosive growth of cryptocurrencies and related assets also poses potential risks to the system, particularly the rise of stable coins as an alternate means payment to the dollar.

Create a Digital Dollar?

The takeoff of stablecoins is putting pressure on the Fed to follow the lead of China and issue its own digital currency.

Proponents argue that would help expand access to the financial system to the millions of Americans without a bank account and speed up and lower the cost of transactions. Opponents warn it would risk hollowing out the banking system as money was yanked out of the financial institutions and parked in digital dollars at the Fed.

It’s “a battle for the soul of the financial system,” said former Bank for International Settlements economic adviser and digital-dollar skeptic Stephen Cecchetti.

A decision to go ahead would probably require at least the tacit approval of lawmakers, potentially enmeshing the Fed in politically treacherous terrain.

Repairing the Fed’s Tarnished Reputation

That terrain will be all the more trickier to traverse after the central bank’s reputation as straight-shooting economic steward took a knock with the revelation that some policy makers traded in financial securities while the Fed was aiding the markets and the economy. 

The news led to the resignations of the Dallas and Boston reserve bank presidents and the adoption of strict new curbs on trading by top Fed officials, including a ban on the buying of individual stocks and bonds.

This “is a start, but we can’t let up now,” Senate Banking Committee Chair Sherrod Brown, the Ohio Democrat who leads the panel that oversees the Fed, said in a statement after the restrictions were announced on Oct. 21. “The American people need to be able to trust that the Federal Reserve works for them.” 

Also hanging over the Fed: an ongoing probe into the trading scandal by its internal watchdog.

Climate Change

The Fed is already caught up in a tug-of-war between Democrats and Republicans over what it can and should do to combat global warming.

After years of lagging other central banks, the Fed has ramped up its research on climate change and is actively considering the risks that a warming planet poses to financial stability. In the past year, bank officials created a climate committee, joined a key global group of central banks on the issue and began working with the Treasury Department on Biden’s climate executive order.

But that has failed to appease progressive Democrats, some of whom opposed Powell’s renomination before it was announced. They want the Fed to be far more active in fighting climate change. Some Republicans, meanwhile, have accused the central bank of mission creep.

Inequality

The Fed is also caught in the political crosshairs in the debate about income and racial inequities.

Policy makers have been far more forthright than in the past about the deleterious effects such disparities can have on the economy. And, as part of their new monetary framework, they’ve broadened their definition of their maximum employment goal to make clear they’re seeking “broad-based and inclusive” job gains.

But they’ve faced criticism from the left for contributing to the very income inequality they decry by pursuing an aggressive quantitative-easing program that has pumped up the prices of stocks and other assets mainly held by the rich. And they’ve been attacked for being a largely White man’s club short on racial and gender diversity.

Biden could address these issues in coming weeks. He will announce his pick for Fed vice chair of supervision along with additional nominations for open seats on the Board of Governors beginning in early December, the White House said Monday.

Democrats have also been urging the central bank to improve diversity among the Fed’s leadership with its picks of presidents to head the Dallas and Boston reserve banks, while Republicans are warning it to not be swayed by political pressure.

©2021 Bloomberg L.P.

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Political parties cool to idea of new federal regulations for nomination contests

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OTTAWA – Several federal political parties are expressing reservations about the prospect of fresh regulations to prevent foreign meddlers from tainting their candidate nomination processes.

Elections Canada has suggested possible changes to safeguard nominations, including barring non-citizens from helping choose candidates, requiring parties to publish contest rules and explicitly outlawing behaviour such as voting more than once.

However, representatives of the Bloc Québécois, Green Party and NDP have told a federal commission of inquiry into foreign interference that such changes may be unwelcome, difficult to implement or counterproductive.

The Canada Elections Act currently provides for limited regulation of federal nomination races and contestants.

For instance, only contestants who accept $1,000 in contributions or incur $1,000 in expenses have to file a financial return. In addition, the act does not include specific obligations concerning candidacy, voting, counting or results reporting other than the identity of the successful nominee.

A report released in June by the National Security and Intelligence Committee of Parliamentarians expressed concern about how easily foreign actors can take advantage of loopholes and vulnerabilities to support preferred candidates.

Lucy Watson, national director of the NDP, told the inquiry Thursday she had concerns about the way in which new legislation would interact with the internal decision-making of the party.

“We are very proud of the fact that our members play such a significant role in shaping the internal policies and procedures and infrastructure of the party, and I would not want to see that lost,” she said.

“There are guidelines, there are best practices that we would welcome, but if we were to talk about legal requirements and legislation, that’s something I would have to take away and put further thought into, and have discussions with folks who are integral to the party’s governance.”

In an August interview with the commission of inquiry, Bloc Québécois executive director Mathieu Desquilbet said the party would be opposed to any external body monitoring nomination and leadership contest rules.

A summary tabled Thursday says Desquilbet expressed doubts about the appropriateness of requiring nomination candidates to file a full financial report with Elections Canada, saying the agency’s existing regulatory framework and the Bloc’s internal rules on the matter are sufficient.

Green Party representatives Jon Irwin and Robin Marty told the inquiry in an August interview it would not be realistic for an external body, like Elections Canada, to administer nomination or leadership contests as the resources required would exceed the federal agency’s capacity.

A summary of the interview says Irwin and Marty “also did not believe that rules violations could effectively be investigated by an external body like the Office of the Commissioner of Canada Elections.”

“The types of complaints that get raised during nomination contests can be highly personal, politically driven, and could overwhelm an external body.”

Marty, national campaign director for the party, told the inquiry Thursday that more reporting requirements would also place an administrative burden on volunteers and riding workers.

In addition, he said that disclosing the vote tally of a nomination contest could actually help foreign meddlers by flagging the precise number of ballots needed for a candidate to be chosen.

Irwin, interim executive director of the Greens, said the ideal tactic for a foreign country would be working to get someone in a “position of power” within a Canadian political party.

He said “the bad guys are always a step ahead” when it comes to meddling in the Canadian political process.

In May, David Vigneault, director of the Canadian Security Intelligence Service at the time, said it was very clear from the design of popular social media app TikTok that data gleaned from its users is available to the Chinese government.

A December 2022 CSIS memo tabled at the inquiry Thursday said TikTok “has the potential to be exploited” by Beijing to “bolster its influence and power overseas, including in Canada.”

Asked about the app, Marty told the inquiry the Greens would benefit from more “direction and guidance,” given the party’s lack of resources to address such things.

Representatives of the Liberal and Conservative parties are slated to appear at the inquiry Friday, while chief electoral officer Stéphane Perrault is to testify at a later date.

After her party representatives appeared Thursday, Green Leader Elizabeth May told reporters it was important for all party leaders to work together to come up with acceptable rules.

This report by The Canadian Press was first published Sept. 19, 2024.

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New Brunswick election candidate profile: Green Party Leader David Coon

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FREDERICTON – A look at David Coon, leader of the Green Party of New Brunswick:

Born: Oct. 28, 1956.

Early years: Born in Toronto and raised in Montreal, he spent about three decades as an environmental advocate.

Education: A trained biologist, he graduated with a bachelor of science from McGill University in Montreal in 1978.

Family: He and his wife Janice Harvey have two daughters, Caroline and Laura.

Before politics: Worked as an environmental educator, organizer, activist and manager for 33 years, mainly with the Conservation Council of New Brunswick.

Politics: Joined the Green Party of Canada in May 2006 and was elected leader of the New Brunswick Green Party in September 2012. Won a seat in the legislature in 2014 — a first for the province’s Greens.

Quote: “It was despicable. He’s clearly decided to take the low road in this campaign, to adopt some Trump-lite fearmongering.” — David Coon on Sept. 12, 2024, reacting to Blaine Higgs’s claim that the federal government had decided to send 4,600 asylum seekers to New Brunswick.

This report by The Canadian Press was first published Sept. 19, 2024.

The Canadian Press. All rights reserved.

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New Brunswick election profile: Progressive Conservative Leader Blaine Higgs

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FREDERICTON – A look at Blaine Higgs, leader of the Progressive Conservative Party of New Brunswick.

Born: March 1, 1954.

Early years: The son of a customs officer, he grew up in Forest City, N.B., near the Canada-U.S. border.

Education: Graduated from the University of New Brunswick with a degree in mechanical engineering in 1977.

Family: Married his high-school sweetheart, Marcia, and settled in Saint John, N.B., where they had four daughters: Lindsey, Laura, Sarah and Rachel.

Before politics: Hired by Irving Oil a week after he graduated from university and was eventually promoted to director of distribution. Worked for 33 years at the company.

Politics: Elected to the legislature in 2010 and later served as finance minister under former Progressive Conservative Premier David Alward. Elected Tory leader in 2016 and has been premier since 2018.

Quote: “I’ve always felt parents should play the main role in raising children. No one is denying gender diversity is real. But we need to figure out how to manage it.” — Blaine Higgs in a year-end interview in 2023, explaining changes to school policies about gender identity.

This report by The Canadian Press was first published Sept. 19, 2024.

The Canadian Press. All rights reserved.

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