Biden Sticks With Powell as Fed Chair, Resisting Political Pressure

The White House returned to a longstanding pattern in which presidents reappoint the same leader of the Federal Reserve regardless of partisan identity.

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Biden Renominates Powell as Fed Chair

President Biden announced that he was nominating Jerome H. Powell, the Federal Reserve chair, to another four-year term. He also nominated Lael Brainard, a Federal Reserve governor, as the vice chair.

Today, I’m nominating Jerome Powell for a second term as chair of the Federal Reserve. And I’m — I’m nominating Lael Brainard to take the position as vice chair of the Federal Reserve. When our country was hemorrhaging jobs last year and there was panic in our financial markets, Jay’s steady and decisive leadership helped to stabilize markets and put our economy on track to a robust recovery. Small business creation is surging, surging in America today, which is why I’m proud to say if you look at my presidency so far, it’s a jobs presidency and it’s a small business presidency. So if you look at the facts, here’s what the record shows: record job creation, record economic growth, record new small business creation. That’s the story that should give us confidence about the economy that we’re building, confidence in ourselves, confidence in the future.

President Biden announced that he was nominating Jerome H. Powell, the Federal Reserve chair, to another four-year term. He also nominated Lael Brainard, a Federal Reserve governor, as the vice chair.CreditCredit…Al Drago for The New York Times

WASHINGTON — President Biden said Monday that he would renominate Jerome H. Powell, the Federal Reserve chair, to another four-year term, opting for policy continuity at a moment of rapid inflation and economic uncertainty and betting that the Fed will do more to help workers reap the gains of the pandemic recovery.

The much-awaited decision was a return to tradition in which the central bank’s top official is reappointed regardless of partisan identity — a norm bucked by former President Donald J. Trump, who appointed Mr. Powell instead of renominating Janet L. Yellen.

While some progressive Democrats criticized Mr. Powell’s reappointment, the move was primarily greeted with bipartisan praise that suggested an easy path to confirmation.

Mr. Biden also said he planned to nominate Lael Brainard, a Fed governor whom many progressive groups had championed to replace Mr. Powell, to serve as the Fed’s vice chair, a move that helped mollify some criticism on the left.

The president and his top aides believe that Mr. Powell has done well in supporting the economy through the pandemic recession and a halting recovery, while amassing credibility by standing up to political pressure from Mr. Trump. But Mr. Biden is also making a calculated bet that the Fed chair will be more aligned with his views on the economy and, in particular, inflation, than he is with Republicans in the Senate who have demanded quicker action from the Fed to tamp down rising prices.

“At this moment, of both enormous potential and enormous uncertainty for our economy we need stability and independence at the Federal Reserve,” Mr. Biden said during remarks at the White House. “And we need people of character and integrity, who can be trusted to keep their focus on the right long-term goals of our country, for our country.”

The stakes in the choice are unusually high.

Inflation has jumped because of booming consumer demand, tangled supply lines and labor shortages that have helped to push up the cost of used cars, couches and even food and rent. Yet millions of workers are missing from the labor market compared with before the pandemic.

The central bank is charged with keeping consumer prices stable while striving for maximum employment, and striking that balance could require difficult policy choices in the months ahead.

Mr. Biden, who is facing a delicate balancing act within his own party, deliberated over the pick for months. He consulted with both progressive and moderate Democrats along the way, seeking their views on inflation, worker considerations, financial regulation and climate change policy at the Fed.

That included Senator Elizabeth Warren, who had called Mr. Powell “a dangerous man,” and suggested she would not support his renomination during a testy hearing in late September. Mr. Biden met with Ms. Warren on Nov. 9 in the Oval Office to discuss Fed appointments and called her last Thursday, before he had settled on a pick, according to a person with knowledge of the discussions.

On Friday, Mr. Biden called Mr. Powell and Ms. Brainard to inform them that he had made his choice. The decision was influenced in large part by Mr. Biden’s belief that he and Mr. Powell are philosophically aligned when it comes to keeping interest rates low and continuing to support the economy until more people are working and wages are rising.

On Monday, Mr. Biden said he believed the Fed had more work to do to get to “maximum employment.”

“That’s an economy where companies have to compete to attract workers, instead of workers competing with each other for jobs, where American workers get steady wage increases after decades of stagnation, and where the benefits of economic growth are broadly shared by everyone in the country, not just concentrated for those at the top,” he said.

Yet some economists, and many Republicans, say the Fed runs the risk of allowing inflation to spin out of control if it does not start to pull back efforts to fuel economic growth, with workers demanding increasingly higher wage increases to cover rising costs, resulting in 1970s-style inflation.

Mr. Biden has been suffering politically as prices rise for food, gas and airplane tickets. The president has repeatedly tried to reassure Americans that his economic policies will ultimately calm inflation, a message he is expected to repeat during remarks on Tuesday.

But his larger economic agenda has become tangled in the politics of price increases, particularly as the president pushes Senate Democrats to coalesce around a $2.2 trillion climate change and social policy bill that Mr. Biden says will ease inflationary pressures in years to come but Republicans warn will stoke higher prices immediately.

Mr. Biden said he was certain that both Mr. Powell and Ms. Brainard would work to stabilize inflation and keep the economic recovery on track.

“We’re in a position to attack inflation from the position of strength, not weakness,” he said.

Mr. Powell, who appeared alongside the president and Ms. Brainard at the White House, acknowledged the challenge ahead.

“We know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials like food, housing and transportation,” he said, adding that the Fed would “use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

Mr. Powell’s reappointment suggests that the White House, which has a chance to fully reshape the Fed, is not aiming to completely overhaul the institution.

The Biden administration already has one vacant governor role to fill, and two more seats will open early next year, giving Mr. Biden room to appoint at least three of seven governors. The president must also fill several leadership roles, including the Fed’s vice chair for supervision, a powerful position given its influence on bank oversight.

Mr. Biden has been under pressure from progressives and moderate Democrats to pick a diverse slate of leaders for the Fed who would prioritize tough bank regulation and do what they could to address climate change risks in the financial system.

Lael Brainard is the president’s choice to be the Federal Reserve’s vice chair.Credit…Justin T. Gellerson for The New York Times

Mr. Powell has faced opposition from some progressive Democrats, who have faulted him for not using the Fed’s tools to help combat climate change and for voting to loosen financial rules for the nation’s biggest banks.

He has also come under criticism for an ethics scandal that took place while he was overseeing the central bank. Two of the Fed’s 12 regional presidents made significant financial trades for their private accounts in 2020, when the Fed was actively rescuing many markets from pandemic fallout.

Mr. Biden tried to ease at least some of those concerns, saying that Mr. Powell had assured him that the Fed would “accelerate” efforts to address and mitigate the risk that climate change poses to the economy.

Mr. Biden also said he planned to soon nominate a new vice chair for supervision. In conversations with Mr. Biden, Mr. Powell convinced the president he would follow the lead of that person in setting financial regulatory policy, according to people with knowledge of the matter.

Whether that will be enough to appease Mr. Powell’s critics remains to be seen. Ms. Warren said in a statement on Monday that she would not vote for Mr. Powell’s confirmation. Still, she did not recount her litany of concerns about him.

Another critic, Senator Sheldon Whitehouse of Rhode Island, who opposed Mr. Powell’s reappointment, said on Monday that was “disappointed” in Mr. Biden’s decision. But he did not say whether he would vote no on his nomination.

“I sincerely hope that, if confirmed, Powell will reassess his past opposition to utilizing the Fed’s regulatory tools to minimize climate-related risks to the financial sector,” he said.

Other Democrats were more supportive, including Senator Sherrod Brown of Ohio, who praised Mr. Powell for helping steer the economy through the pandemic. Mr. Brown’s position is important — he is the chairman of the Senate Banking Committee, which oversees the Fed and will handle the confirmation hearings for both Mr. Powell and Ms. Brainard.

Republicans, who supported Mr. Powell when he was nominated as chair by Mr. Trump, also lauded Mr. Biden’s decision.

Senator Patrick J. Toomey, Republican of Pennsylvania and the ranking member on the Senate Banking Committee, released a statement saying he would support Mr. Powell’s nomination, as did several other of his party’s senators. That full-throated support did not extend to Ms. Brainard, however, with Mr. Toomey and other Republicans saying they had some concerns about her views on financial regulation and other issues.

The big challenge ahead for Mr. Powell is deciding when — and how quickly — to remove pandemic-era economic support that the central bank has been using to cushion workers, businesses and financial markets.

The Fed has so far decided to slow its large bond-purchase program, a first step toward withdrawing monetary policy support that will leave it more nimble to raise interest rates next year if reining in the economy becomes necessary.

The federal funds rate has been set to near-zero since March 2020, keeping many types of borrowing cheap and helping to fuel home and car purchases and other types of demand that in turn set the stage for strong hiring. Raising it could cool off growth and weaken inflation.

Yet trying to slow price gains would come at a cost. Workers are still trickling back after severe job losses at the onset of the pandemic, and the Fed is hoping to give the job market more space and time to heal. That’s especially true because continued waves of infection may be keeping many people from searching for work, either out of health concerns or because they lack child care.

President Biden will nominate Lael Brainard as the Federal Reserve’s Vice Chair.Credit…Justin T. Gellerson for The New York Times

President Biden said he would nominate Lael Brainard as the Federal Reserve’s vice chair, the No. 2 role at the Fed and one that could give her a stronger mandate to influence everything from the cost of money to the future of digital cash.

Ms. Brainard, who has been a Fed governor since 2014, is already part the inner policy circle of the Fed chair, Jerome H. Powell. But her elevation to vice chair will make her Mr. Powell’s closest collaborator on monetary policy matters if she is confirmed by the Senate.

The vice chair holds little power officially, but in practice is regularly the person who floats new ideas in speeches and who helps to guide a Fed chair’s thinking on policy matters.

Ms. Brainard’s elevation comes at a pivotal economic moment. The Fed is wrestling with how to set policy at a time when inflation has shot higher but millions of jobs remain missing. Like Mr. Powell, Ms. Brainard has been wary of reacting to high prices too swiftly by lifting interest rates to choke off growth, worried that it could diminish job market opportunities. But both are carefully watching the price trajectory, with an eye on ensuring that high inflation does not become a long-lasting trend.

“I’m committed to putting working Americans at the center of my work at the Federal Reserve,” Ms. Brainard said during a news conference at the White House on Monday, where Mr. Biden introduced his picks. “This means getting inflation down at a time when people are focused on their jobs and how far their paychecks will go.”

Ms. Brainard also pledged to ensure that the economy would be “sustainable for future generations” and that the Fed would reflect “the diversity of the communities we serve.”

Her views on financial regulation and climate change have won her plaudits from some progressives but drawn concern from Republicans, raising questions about how much support she might win in the Senate. Senator Patrick J. Toomey of Pennsylvania, the top Republican on the Banking, Housing, and Urban Affairs Committee, applauded Mr. Powell’s reappointment but couched his support for Ms. Brainard.

“While I have concerns about regulatory policies that Governor Brainard would support as vice chair, I look forward to meeting with her to discuss these and other matters,” Mr. Toomey said in a statement on Monday.

Senator Kevin Cramer of North Dakota, a member of the committee, also said he had concerns about Ms. Brainard’s regulatory policies and looked forward to discussing those matters with her.

Ms. Brainard has been a major proponent of a more active Fed role in making sure the financial system is prepared for potential fallout from climate change. She gave a speech at the Fed’s first climate-focused conference in 2019 and has recently focused on the need for climate scenario analysis for banks, which would test how well they would hold up amid extreme weather events, sea level change and other climate-tied risks.

As the sole Democrat left at the Fed board in Washington after 2018, Ms. Brainard used her position to draw attention to efforts to chisel away at bank rules, a process that was being driven by Randal K. Quarles, the Fed’s vice chair for supervision who is stepping down in December. In the process, she created a rare public disagreement at the consensus-driven central bank, dissenting from policy changes more than 20 times in 2019 and 2020.

Ms. Brainard often released detailed explanations of her dissents, laying out a road map of what changes were made and why they might be problematic. For instance, when the Fed streamlined its stress-test approach, she supported simplification in spirit — but disagreed with how it was done.

“Today’s rule gives a green light for large banks to reduce their capital buffers materially, at a time when payouts have already exceeded earnings for several years on average,” she said, publishing an analysis of how she came to that conclusion, one that Mr. Quarles disagreed with.

Her new position will not give her more direct say over financial regulation than she previously had — governors all have a single vote on regulatory decisions — but she and her record of dissents could be a resource for the new person coming into the vice chair for supervision job.

Senator Sherrod Brown, an Ohio Democrat and chairman of the Banking, Housing, and Urban Affairs Committee, said Ms. Brainard had “spent her life fighting for a stronger, fairer economy.”

“At this moment, when workers are finally starting to see more power in our economy, we need a vice chair who understands that our economic recovery must strengthen our communities and put workers first,” Mr. Brown said in a statement.

Ms. Brainard would be the third woman in the Fed’s 108-year history to hold the job, following in Janet L. Yellen’s and Alice Rivlin’s footsteps. Her new role would put her in a powerful position to weigh in on the path ahead for digital currency as the Fed contemplates whether it needs to issue one, something some other global central banks have done or are in the process of doing. Her more elevated position could also give her a bigger bully pulpit on climate-related issues.

Ms. Brainard is a longtime Washington policymaker. She played a leading role in European debt crisis and Chinese currency deliberations during the Obama administration as a Treasury Department official, and she worked for the National Economic Council during the Clinton administration. She earned her economics doctorate at Harvard and was an up-and-coming professor at the Massachusetts Institute of Technology before moving to Washington to pursue a career in policy.

Ms. Brainard was initially viewed as a leading candidate for Biden administration Treasury secretary and her name continues to surface as a potential successor should Ms. Yellen, who now holds that top policy role, step down.

The U.S. Capitol in Washington. Members of Congress were reacting on Monday to President Biden’s decision to nominate Jerome H. Powell for a second term as the chair of the Federal Reserve.Credit…Stefani Reynolds for The New York Times

Senator Elizabeth Warren, the Massachusetts Democrat, said on Monday that she would not vote to confirm Jerome H. Powell for a second term as chair of the Federal Reserve, citing “failures on regulation, climate and ethics.”

Ms. Warren, who has called Mr. Powell “a dangerous man,” had been pushing for President Biden to name Lael Brainard as the next chair of the central bank. Mr. Biden’s decision to name Ms. Brainard to the No. 2 spot at the Fed drew Ms. Warren’s support but she said she would continue to push for additional governors who support aggressive financial regulation.

“It’s no secret I oppose Chair Jerome Powell’s renomination, and I will vote against him,” Ms. Warren said in a statement.

Other powerful Democrats, along with Republican lawmakers expressed. support for Mr. Biden’s decision, saying it would keep the central bank on a steady course and protect its political independence at a time of inflation and economic uncertainty for the country.

Senator Sherrod Brown, Democrat of Ohio and the chair of the Senate Banking Committee, which oversees the Fed, praised Mr. Powell’s role in helping the labor market heal from the pandemic downturn and giving workers greater bargaining power in terms of higher wages.

“The Federal Reserve must continue to help steer our economic recovery in the right direction — toward full employment and an economy that empowers workers and their families,” Mr. Brown said. “I look forward to working with Powell to stand up to Wall Street and stand up for workers, so that they share in the prosperity they create.”

Senator Jon Tester, a Montana Democrat, said on Twitter that the decision “a smart move.”

Mr. Biden’s decision to reappoint Mr. Powell, who was first appointed by former President Donald J. Trump, returns the country to a long tradition in which presidents of both parties have embraced the Fed chairs selected by their predecessors, in an expression of support for the central bank’s political independence. Mr. Trump bucked the tradition, replacing Janet L. Yellen with Mr. Powell in 2018.

Some progressive Democrats had urged Mr. Biden to also break with tradition and appoint someone else to the role. In addition to Ms. Warren, Senators Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon had called for Mr. Powell to be replaced, citing his views on climate change, financial regulation and an ethics scandal at the central bank.

Mr. Whitehouse said in a statement on Monday that he was “disappointed” in the decision, adding that Mr. Powell had done too little to address climate change.

“Our Fed Chair must devote immediate and thorough attention to the climate threat before it is too late,” Mr. Whitehouse said in the statement. “I sincerely hope that, if confirmed, Powell will reassess his past opposition to utilizing the Fed’s regulatory tools to minimize climate-related risks to the financial sector.”

Americans for Financial Reform, a coalition of community, labor and civil rights groups, called the decision “a major disappointment to those of us who have fought for tougher regulation of Wall Street.”

Mr. Biden’s decision to nominate Ms. Brainard for vice chair could help mollify some of those concerns. Some progressive groups had been pushing for Ms. Brainard to lead the central bank, in part because of her views on climate change and financial regulation.

Mr. Whitehouse applauded Ms. Brainard’s nomination in his statement, saying “she clearly recognizes the gravity of the climate-related financial and economic risks facing our nation and will push the Fed to fully utilize its regulatory authorities in this space.”

Other groups that have been critical of the Fed expressed support for the picks, particularly Ms. Brainard.

The Fed Up Campaign, which advocates more accommodative monetary policies and full employment, said the Fed needed “to continue pro-employment, pro-wage growth, pro-racial justice macroeconomic policies for as long as economic conditions allow.”

“Governor Brainard is a strong choice for Vice Chair, and we are expecting Biden to continue to name truly bold and pro-worker choices to the vacant governor seats,” the group said.

Lawmakers also expressed support for the move, though some Republicans expressed concerns about Ms. Brainard, who has pushed for tougher financial regulations.

Senator Patrick J. Toomey of Pennsylvania, the ranking member on the Senate Banking Committee, said that he disagreed with some of Mr. Powell’s decisions during the crisis, but that he would support his nomination.

“When the pandemic hit in 2020, Chairman Powell acted swiftly and took extraordinary and necessary steps to help stabilize financial markets and the economy,” Mr. Toomey said in a statement.

The senator expressed “concerns about regulatory policies that Governor Brainard would support as Vice Chair,” but said looked forward to discussing those issues.

Both Mr. Powell and Ms. Brainard must win 60 votes in order to be confirmed by the Senate.

President Biden resisted pressure from progressives to replace Jerome H. Powell as the chair of the central bank.Credit…Sarahbeth Maney/The New York Times

President Biden’s decision to renominate Jerome H. Powell to head the Federal Reserve reflects the president’s belief that despite high inflation, America’s economy still has a long way to go to deliver strong gains to women, Black and Hispanic Americans and low-wage workers trying to climb into the middle class.

Mr. Biden made clear during a White House appearance that he believes Mr. Powell is philosophically aligned with his vision that the central bank needs to keep interest rates low and continue supporting the economy until it reaches maximum employment.

“That’s an economy where companies have to compete to attract workers, instead of workers competing with each other for jobs, where American workers get steady wage increases after decades of stagnation, and where the benefits of economic growth are broadly shared by everyone in the country, not just concentrated for those at the top,” Mr. Biden said Monday.

The president’s decision is also based on his belief that Mr. Powell and Lael Brainard, the Fed governor whom Mr. Biden nominated for vice chair on Monday, share his views on stabilizing inflation while being careful not to snuff out the recovery before the labor market heals.

It is a gamble on several fronts for the president. He is betting that Mr. Powell will be more aligned with his views on the economy than he is with Republicans in the Senate who have decried rising inflation for months and demanded action from the Fed. Many of those Republicans endorsed Mr. Powell quickly on Monday, expressing hope that he would act swiftly to combat inflation.

The president is also betting that his team is correct in its economic diagnosis that the inflation risk is fading and marginalized groups of workers still need help to reap the full gains of economic growth.

Mr. Biden and his aides view the recent burst of inflation, which surged to its highest levels in three decades last month, as largely the product of crimps in global supply chains — and not a function of monetary policy that necessitates quick rate increases from the central bank.

The decision to renominate Mr. Powell and to elevate Ms. Brainard is the sum of a wide range of political and economic calculations. Chief among them was choosing the chair with the desire, and bipartisan support, to pursue full employment.

But administration officials say other considerations also favored Mr. Powell’s reappointment, like the need to maintain central bank stability in the midst of the economic disruption of a pandemic and the record of independence that Mr. Powell built over a four-year term that included withering criticism from former President Donald J. Trump, who appointed him to the chairmanship.

Mr. Powell also appears to have defused, in the eyes of the president and his aides, liberal Democrats’ concerns that on his watch the Fed has not regulated big banks and other financial institutions stringently enough. In conversations with Mr. Biden leading up to the decision, Mr. Powell convinced the president he would follow the lead of the Fed’s vice president for supervision — an open position that Mr. Biden has yet to fill — in determining the central bank’s policies on financial regulations.

Mr. Biden is expected to announce his pick for that job early next month, and Democrats expect him to nominate someone who will take a hard line on banks, a key demand of Senator Elizabeth Warren of Massachusetts, a progressive who opposes Mr. Powell’s renomination and has called him “dangerous.” Mr. Biden recently discussed his Fed picks with Ms. Warren, and he has been in regular contact with Senator Sherrod Brown of Ohio, the Democrat who leads the banking committee.

Lael Brainard’s new role would make her Jerome H. Powell’s closest collaborator on monetary policy issues at the Federal Reserve.Credit…Cliff Owen/Associated Press

Lael Brainard, a Federal Reserve governor since 2014, was in the mix to potentially replace Jerome H. Powell as Fed chair, but President Biden’s decision to elevate her to the Fed’s No. 2 role will still place her in a powerful position at the central bank.

If confirmed as vice chair, Ms. Brainard would be the third woman in the Fed’s 108-year history to serve in the role after Janet L. Yellen and Alice Rivlin. Her term would begin in February 2022, after the departure of Richard Clarida, the current vice chair.

Ms. Brainard may not be a household name, but she has been a player in Washington political circles for years, including serving in a top role at the Treasury Department during the Obama administration.

Here’s a look at who Ms. Brainard is and why Mr. Biden chose her for a top spot at the Fed.

Who is Lael Brainard?

Ms. Brainard, a Democrat, started her career in policymaking in the 1990s. During the Obama administration, Ms. Brainard served as the Treasury’s under secretary for international affairs, earning a reputation as a perfectionist. At the department, she tried to put pressure on China to allow market forces to guide its currency and worked to persuade Europe to pursue a more ambitious economic rescue during its debt crisis.

Ms. Brainard also served as deputy national economic adviser to former President Bill Clinton. From 1990 to 1996, Ms. Brainard was an assistant and associate professor of applied economics at the Massachusetts Institute of Technology.

The daughter of a Foreign Service officer during the Cold War, Ms. Brainard was raised in Communist Poland and Germany before reunification. She went on to receive an economics doctorate at Harvard University.

Mr. Powell, who Mr. Biden nominated for a second term as Fed chair on Monday, has frequently praised Ms. Brainard’s intellect in private conversations and has installed her in key roles at the Fed, including tapping her to play a major part in devising and overseeing the Fed’s emergency lending programs.

In January, Ms. Brainard was viewed as a leading contender to be Mr. Biden’s Treasury secretary, a position that went to Ms. Yellen.

What does the vice chair do?

The vice chair, the No. 2 role at the Fed, holds little power officially, but the vice chair typically floats new ideas in speeches and helps advise a Fed chair’s thinking on policy issues.

Although Ms. Brainard is already part of Mr. Powell’s inner circle of advisers, her new role would make her Mr. Powell’s closest collaborator on monetary policy issues.

What are her views on monetary policy?

Both Mr. Powell and Ms. Brainard have been cautious of reacting to inflation too quickly by raising interest rates. But they have said they are carefully watching the price changes to ensure that high inflation does not become long-lasting.

She has also been supportive of the Fed’s approach to slowing its bond-buying program, which was put in place during the pandemic to help support markets and keep money flowing through the economy. Some Fed officials have pushed for a quicker “taper” given inflation, but Ms. Brainard has not suggested she wants to deviate from the course that the Fed outlined at its last policy meeting.

Will her new role change anything at the Fed?

Ms. Brainard has been outspoken on several issues, including the need for the Fed to take a more active role in climate-related issues to ensure that the financial system is prepared for potential fallout from climate change. She has also pushed back against recent moves by the Fed to loosen some post-financial crisis bank regulations, including voting against rule changes and issuing pointed dissents criticizing the Fed’s approach.

Her new role could put her in a stronger position to influence those topics.

In his statement announcing her nomination, Mr. Biden pointed to climate change and financial regulation as areas where he expected both Ms. Brainard and Mr. Powell to play a strong role, saying “they also share my deep belief that urgent action is needed to address the economic risks posed by climate change, and stay ahead of emerging risks in our financial system.”

Stocks closed down on Monday, as a late-day slide undid early gains that followed President Biden’s decision to renominate renominated Jerome H. Powell for another four-year term as chair of the Federal Reserve.

The announcement that Mr. Powell would remain at the helm of the central bank — whose monetary policy has been a key driver of the market’s remarkable run over the past two years — had appeared to comfort investors for much of the day, as the S&P 500 briefly touched record levels.

“The announcement of Powell’s renomination ensures continuity in the stance on policy,” Ellen Zentner, the chief U.S. economist at Morgan Stanley, wrote in a note to clients.

But yields on government bonds ticked higher as the day went on, driven in part by expectations that a Fed led by Mr. Powell will ultimately respond to higher inflation by more aggressively raising interest rates.

The rising yields eventually turned what had been a rally into a sudden sell-off. After being up nearly 1 percent in early trading, the S&P 500 closed down 0.3 percent.

Technology shares with high prices compared with the profits the companies are expected to earn over the next year — which are especially sensitive to movements in interest rates — got clobbered. The cloud technology providers Zscaler, Datadog and Fastly fell more than 6 percent.

Tech giants including Amazon and Alphabet — two companies with valuations well over $1 trillion that have significant sway in market indexes — were hit hard, helping push the tech-heavy Nasdaq composite down 1.3 percent. Amazon was down 2.8 percent and Alphabet, Google’s parent company, was down more than 1.5 percent.

Technology stocks are especially sensitive to rises in long-term Treasury bond yields, which move opposite bond prices. Those higher (and nearly guaranteed) returns on government debt offer an attractive option to investors, siphoning money out of the stock market — which is exactly what happened after Monday’s announcement.

Yields on the two-year Treasury note, which had been hovering around 0.52 percent before the announcement, climbed to 0.63 percent. The yield on the five-year Treasury bill, which captures market expectations for how the Fed’s monetary policy will evolve over the next few years, rose to 1.33 percent.

Government bond yields — which essentially act as the foundation for interest rates charged on new car loans, mortgages, multibillion-dollar Wall Street bond offerings and more — are heavily influenced by market expectations about what the Federal Reserve will do with monetary policy. The probability of a rate increase at the Fed’s June 2022 meeting, derived from prices in the Fed funds futures market, jumped to nearly 80 percent on Monday, up from roughly 67 percent at the end of last week.

The rising yields suggested that at least some investors had been betting that Lael Brainard, a Fed governor whom Mr. Biden will promote to vice chair, could instead have been chosen to lead the central bank. Many progressive groups had championed her to replace Mr. Powell.

Instead of tech shares, investors flocked to companies who appeared poised to benefit from a near-term uptick in economic activity.

Ford and General Motors pushed higher, rising 5.6 percent and about 3.7 percent, after the companies announced plans last week that would help them ensure greater control over the supply of microchips, shortages of which have hampered production. Steel makers Nucor and U.S. Steel, key suppliers of steel for car building, rose 6 percent and 4.3 percent.

Other industrial stocks, and shares of companies poised to benefit from the infrastructure bill that Mr. Biden recently signed into law, posted strong gains on Monday. Encore Wire, which makes copper electrical wiring for homes and businesses, rose more than 1.8 percent. Terex, which makes equipment used for handling construction materials like stone and asphalt, was up 2.4 percent.

Energy shares, sensitive to an uptick in economic demand for fuel, were the best performing part of the stock market, rising nearly 1.8 percent. Benchmark prices for U.S. crude oil rose 65 cents or 0.9 percent to $76.75 a barrel.

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