Wall Street, it is official: President Joe Biden is sticking with Jerome Powell as chair of the Federal Reserve System. Progressives, it is also complete: The president is promoting Lael Brainard to vice chair of the U.S. central bank. For weeks, the financial markets were expecting that Biden would maintain the status quo with Powell, but it was possible he could hurl a curveball to appease the progressive base by handing Brainard the keys to one of the world’s most powerful institutions. Biden compromised and gave these two blocs the best of both worlds. But what does this mean for monetary policy, the equities stadium, and the broader post-crisis economy? In all likelihood: more of the same.
Powell Pick a No Brainard
Nominations for these two positions will now head to the U.S. Senate for confirmation. It is unclear how the votes will go, although the Republican and Democratic brass have given high marks to the incumbent chair. Biden praised Powell for his “decisive” handling of the nation’s economy in the early days of the coronavirus pandemic. He said in a statement:
“As I’ve said before, we can’t just return to where we were before the pandemic, we need to build our economy back better, and I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before.”
The White House announcement added that Brainard, who is considered “one of our country’s leading macroeconomists,” has maintained a critical role at the central bank by cooperating with Powell to jump-start the economic recovery. Brainard will succeed Richard Clarida as the second person in charge. His term expires on Jan. 31, 2022.
Bulls Cheer Biden
Financial markets cheered the choice. The Dow Jones Industrial Average (DJIA) surged close to 36,000, while the S&P 500 topped 4,700. The U.S. Treasury market was in a sea of green, with the benchmark ten-year bond testing 1.6%. The U.S. Dollar Index (DXY), which gauges the greenback against a basket of currencies, advanced as high as 96.34. Gold and silver, two conventional safe-haven assets in a time of chaos and upheaval, endured a steep selloff. Bitcoin, a much-debated safe-haven asset, continued its string of losses, falling below $58,000. Put simply, Wall Street was ebullient on the news.
Powellflation Continuity at the Fed?
The Eccles Building has initiated a remodeling process that aims to curtail monetary expansion and gradually reduce hooch amounts in the punch bowl. In other words, the Fed is trimming its $120 billion-a-month in asset purchases, with interest rate hikes forecast to arrive by the summer. This, market analysts aver, requires continuity at the highest levels of the central bank.
“With the Federal Reserve at an inflection point of starting to dial back stimulus, continuity at Fed chair is key,” said Greg McBride, chief financial analyst at Bankrate.com. “It’s tough to change jockeys in the middle of the race.” He added that making the announcement before the opening bell helped alleviate market jitters heading into the Thanksgiving holiday.
But while this is something the market is pleased by right now, does it solve any of the fundamental problems impacting U.S. consumers? The consensus among the rate-setting Federal Open Market Committee (FOMC) members is that inflation remains transitory, despite the consumer price index (CPI), the producer price index (PPI), and the personal consumption expenditure (PCE) price index sizzling and expected to remain high for another year, according to Treasury Secretary Janet Yellen.
As the Fed continues to wind down stimulus and relief efforts, Powell is taking more of a slow-and-steady approach to scaling back quantitative easing. This, market observers note, explains why the Fed chair has employed terms like “patient” to justify refraining from raising interest rates sooner. Still, Powell’s track record has been less than adequate, missing the mark on the most significant increase in price inflation in three decades. What he does next may depend on how the chief measurements on his dashboard perform. So far, it suggests that he may need to pull the trigger on rate hikes by next summer since high inflation is broad-based and affecting growth.
Brainard Behind the Operation
Clearly, the Biden administration is setting up Brainard to become the next prominent figure in the Federal Reserve System or U.S. government. Be it as a Fed chair or treasury secretary, White House officials are lifting her up the ladder in Washington. As Liberty Nation has reported, many of the progressives inside the Democratic Party have been pushing for Brainard. She is not only a woman in an organization clamoring for gender diversity but also a stalwart of Keynesian economics, championing interventionist measures to micromanage the economy. From central bank digital currencies (CBDCs) to money-supply expansion, Brainard is, as the late Robert Wenzel, editor and publisher of the Economic Policy Journal, noted, “an establishment elitist apparatchik.” And, like Powell, she possesses a putrid track record on inflation by toeing the transitory line.
~ Read more from Andrew Moran.