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U.S. President Joe Biden's decision to reappoint Federal Reserve Chair Jerome Powell arrives at a critical juncture for the central bank.

If confirmed by the Senate, Powell will stay at the helm of the Fed as it charts forward a path for monetary policy that manages to both control the highest inflation in decades without halting the labor market recovery before millions of unemployed Americans can benefit.

Progressive Democrats want the Fed to take on a more expansive role in the economy, by beefing up efforts to bolster employment, heading off climate risk and addressing inequality. Conservatives want it to stick to its monetary policy lane, pay more attention to tamping down inflation and reduce its footprint in financial markets and on the oversight front.

Powell will also need to tackle questions about the nature of money. Here are some of the biggest challenges he could face in the next four years:

GETTING POLICY RIGHT

After the coronavirus pandemic hit, the Fed slashed its benchmark overnight interest rate to near zero and bought trillions of dollars of Treasuries and mortgage-backed securities.

Fed policymakers started winding down the asset purchases this month. But some officials are now publicly debating whether it may be appropriate to speed up the pace of that taper, a topic that could come up when officials meet next month on Dec. 14 and 15.

Under a new framework adopted in August of 2020, Fed officials said they plan to wait to raise interest rates until the economy reaches full employment, and inflation is at 2% and on track to moderately exceed that level.

But Powell may have trouble with that promise depending on what happens with inflation. While many Fed policymakers believe the current burst of above-2% inflation is temporary, some say the Fed may need to raise rates sooner than expected next year to stifle the price increases. That could lead the central bank to slow the economy before all would-be workers can get a job.

As of October, there were still about 4 million fewer Americans employed than there were before the pandemic.

"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," Powell said during a press conference on Monday after Biden announced the nomination. "We use our tools both to support the economy and strong labor market, and to prevent higher inflation from becoming entrenched."

FED AS WATCHDOG

If the Fed's new framework has it keeping monetary policy looser for longer in pursuit of a stronger labor market, analysts say, it may need to tighten financial regulations to avert risky behavior that could precipitate a crisis.

"Financial regulation in my view is number two on the agenda, and especially continuing to deal with the issue of containing financial risk in an environment of historically low interest rates," said David Wilcox, a former top economist at the Fed and currently a senior fellow at the Peterson Institute for International Economics.

Fed leaders will also need to look at financial stability more broadly, Wilcox said.

Systemic weaknesses in how Treasuries and money markets are traded were laid bare in March of 2020 by the near collapse of financial markets in the wake of the pandemic-related shutdowns.

Increasingly popular "stablecoins," a largely unregulated form of cryptocurrency that can be pegged to the dollar, are an asset class that some Fed officials, including Powell, say require more regulation.

GOING DIGITAL?

One main question Powell could face is whether the Fed should issue its own digital currency. Powell has been non-committal so far. Fed Governor Lael Brainard, who Biden nominated to be promoted to vice chair, has said she would find it hard to imagine not doing so. The Fed plans to publish a discussion paper on the topic soon.

Supporters say a well-designed digital currency could lower transaction costs and increase access to the banking system for disadvantaged groups. Others worry that banks could be sidelined if American households and businesses dispense with regular checking accounts and go straight to the Fed.

China and other countries are already issuing their own digital currencies, as are private companies such as Amazon.com Inc . If widely adopted, such tokens could fragment the payments system, threaten the Fed's ability to control interest rates, and endanger the U.S. dollar's global dominance.

CLIMATE RISKS

Powell will also be under pressure from progressives to understand and address the economic and financial market implications of uncontrolled wildfires, super-powerful hurricanes, and other devastating impacts of climate change.

Two progressive Democratic senators, Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon, issued a joint statement last week saying they oppose Powell's reappointment because they think he has not done enough to combat climate change.

But the Fed's mandate does not include any remit to combat climate change directly, as is the case for some other central banks.

The Fed created two internal panels last year, one focused on climate-related risks at individual banks, and the other on system-wide threats. It also became the last major central bank to join the Network for Greening the Financial System, which develops recommendations for central banks to respond to climate change.

Both could be vehicles for Powell to do more on the climate front, though a more aggressive stance on par with other central banks may prove difficult without new legislation.

RACIAL AND GENDER GAPS

Fed officials have also become more outspoken on the potential for racial and gender inequities to drag on economic growth.

U.S. Senator Pat Toomey, a Republican, calls that "mission creep." Many on the left of the political divide, however, say it doesn't go far enough and fault the Fed's bond-buying program for lining rich people's pockets by boosting stock prices.

In his second term, Powell could help to fine-tune the Fed's tools for potentially narrowing some of those gaps, including through programs meant to boost lending to small businesses and supervisory changes that encourage banks to work with consumers struggling to repay their loans, said Julia Coronado, a former Fed economist who is now president of MacroPolicy Perspectives.