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.

“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.

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