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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.

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  • 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.

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.

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