Predictions for the U.S. Economy as Federal Reserve Chair Finishes His Term

If you're anything like me, you've been tracking President Joe Biden's cabinet appointments and wondering how they might affect your financial prospects. One of the most important economic positions, Federal Reserve Chair, will be held by Jerome Powell until his term ends in February 2022.

Why exactly is Powell so critical to the economic success of the U.S.? The Chair of the Federal Reserve manages the balance sheet for the entire nation. He or she can vote to adjust interest rates and serves as a guiding force of the nation's economic policy. Explore Powell's recent predictions and the projected market impact with less than a year remaining in his term.

Unemployment Recovery

In an interview on the Wall Street Journal Jobs Summit, Powell stressed the importance of patience while awaiting economic recovery. He predicts a slow decrease in unemployment numbers and for inflation to continue lagging, a weak economic indicator. According to the New York Times, the federal government reported unemployment rates in February 2021 exceeded February 2020 rates by 200%. In March 2021, CNBC reported that more than 18 million Americans currently receive unemployment benefits.

If you receive unemployment benefits, make sure you understand how these payments are taxed before you file with the IRS in April. If you did not have taxes deducted from your payments, you could end up owing instead of receiving a return.

Stock Market Impact

In the wake of Powell's early March interview, stock prices dropped and bond yields increased in price. These signs show that investors expect inflation and growth to increase, another positive economic indicator. If you have money to invest, I always recommend long-term, tax-advantaged vehicles such as the 401(k), IRA and Roth. Forbes reports that agriculture, industrial metal and defense stocks have been rising in recent quarters if you want to switch up your sector approach. Tech stocks remain a safe bet and often provide growth in the double digits for savvy investors.

You shouldn't pull your money out of these accounts right now if you find you're losing ground on your retirement goals. Ride out the low points to make the most of compound interest, and take advantage of the lower share prices right now. You might want to check in and rebalance your portfolio to make sure you have an appropriate blend of stocks, bonds and cash depending on your risk level and financial goals. If you're not already investing, make this the year you start saving at least 20% of your income, whether in a retirement account or elsewhere.

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Consumer Pricing

Powell also told the Wall Street Journal that while economic reopening in many states will drive a temporary boost in interest rates, this short-term rise won't warrant increased central bank interest rates. Last month, the Consumer Price Index rose by 0.4%, in line with economist projections. We're already seeing an increase in gas prices, so you might want to limit travel this summer if you're on a strict budget. Food prices are also on the rise. If you have means and the space, you may want to stock up on your household staples in anticipation of a further price bump.

President Biden can either appoint a new Federal Reserve Chair or reappoint Powell for another term in February 2022. Currently, industry experts have mixed opinions about whether a replacement for this role waits in the wings, but expect that Treasury Secretary Janet Yellin and her relationship with Powell in the coming months will significantly influence the decision about whether to keep him on as chair. Possible candidates for the role include Lael Brainerd, who was considered for the role currently occupied by Yellin and Raphael Bostic, President of the Atlanta Fed.