Speculation was sparked this week when it became known that the US president had held a meeting at the White House with Lael Brainard, governor of the Fed, as a possible replacement for Powell. Brainard arrived at the Federal Reserve in 2014 appointed by Barack Obama and would have the support of Democratic senators, while Powell has the clear favor of Republicans – it was Trump who appointed him – and has also forged supports in the Democratic party. Only Senator Elisabeth Warren has been openly against his re-election.
The White House candidate to chair the Fed must win the approval of the Senate, equally divided between Republicans and Democrats, and the greater political consensus that Powell awakens plays in his favor for re-election, although Brainard may be the preference of Biden, for its clear profile dovish -favorable to an accommodative monetary policy- and its known emphasis on the need to shore up the recovery of the labor market.
For Citi, the election of Brainard for the presidency “would give the Fed a more accommodative profile than the current one”. In any case, the U.S. bank gives Powell’s re-election a 70% chance, in line with estimates collected by the online betting website PredictIt.
The Japanese bank MUFG adds that “under Brainard, the Fed would put more emphasis on achieving its full employment mandate before raising rates”. In fact, Brainard’s emergence in the pool as an alternative to Powell was greeted in the market with falling bond yields, a reflection of her moderate monetary policy profile.
Citi does see Brainard as the best-placed candidate for vice president of banking regulation, after the current head of regulation, Randal Quarles, announced his retirement.
Trio of vacancies
In fact, Biden must decide not only on whether or not to re-elect Powell – an announcement that is expected before Thanksgiving, on 25 November – but also on the replacement of Quarles and the current vice-president Richard Clarida, whose mandate also ends on 31 January. All an opportunity, and a temptation, to adjust the Fed’s executive to the challenge posed by inflation and its impact on the pockets of citizens. Prices have risen in the United States to 6.2% year-on-year in October, the sharpest rise since 1990.
With the appointment of Brainard at the head of banking supervision, Biden would have the opportunity to undo the deregulation measures adopted by Quarles, so liked by Donald Trump, and which have also had the approval of Powell. Quarles has facilitated the relaxation of rules and capital requirements for banks that were put in place after the Lehman Brothers crisis, which Brainard has visibly opposed: she has voted against more than 20 decisions on banking regulation taken by the Fed since the beginning of 2018. She is also a fervent advocate of incorporating climate risk into Fed policy, as the European Central Bank has done.