Fed's Powell will aim to win a high-stakes bet in 2nd term

WASHINGTON (AP) — Federal Reserve Chair Jerome Powell gambled last year that his ultra-low rate policies would help revive an economy that had sunk deep into a pandemic-induced recession. So far, his bet has mostly paid off.

Growth and hiring have rebounded faster than anyone expected. President Joe Biden, citing his commitment to lowering unemployment, on Monday picked him for another four-year term.

Yet Powell's challenge is hardly over. Inflation has jumped to a three-decade high, and Powell’s efforts to contain it will constitute the stiffest test of his next term. In doing so, he will also have to grapple with additional complications, from the unusual nature of the pandemic recovery to the risk of getting ahead of other central banks around the world.

Getting inflation under control will be particularly difficult because the Fed isn't facing a traditionally overheating economy. Normally, the central bank can cool runaway growth, and the threat of high inflation, by raising its benchmark interest rate, which affects other loan rates throughout the economy. Doing so tends to slow borrowing and spending.

This time, huge government stimulus spending, the release of pent-up demand as the economy reopened and the Fed's own policies — it's kept its short-term rate near zero since March 2020 — has supercharged consumer demand. The spending surge has mostly been funneled into goods like cars, furniture and electronics. The jump in demand has clogged ports and railways and collided with labor and supply shortages. That combination of factors isn’t something the Fed can fix.

“This isn’t your garden-variety inflation spike," said Sarah Binder, a political scientist at George Washington University who has studied the Fed. “This pandemic economy is different. There’s really...