Biden Retains Command of US BC: Understand What It Means for the Economy

By choosing to keep Jerome Powell in his role, Joe Biden proved that he learned a valuable lesson from former President Barack Obama about the importance of continuing in the face of partisanship during challenging economic times.

The current president of Federal Reserve, the central bank of the United States, was appointed to the position by former president Donald Trump in 2017.

As Obama kept Ben Bernanke in office after the Great Recession of 2008, despite being nominated by Republican George W. Bush, Biden acknowledged that it makes sense to keep Powell so he can remain at the helm of the post-recovery recovery.Covid.

Lael Brainard, a current Federal Reserve governor and former Treasury official in the Obama administration, was considered a strong option to replace Powell as Fed chairman.

Biden appointed her instead to be the institution’s vice president, potentially setting her up to assume the presidency in 2026 after Powell’s second term, if approved by the Senate, expires.

After all, Brainard is seen, especially by progressive Democrats who oppose Powell, as someone who will focus more on issues like income inequality and climate change, not just the Fed’s official obligations to achieve full employment and price stability. .

Concerns about stock trading that have led tothree Fed officials to resign, were also considered a factor that would increase Brainard’s chances of succeeding Powell.

But the dramatic increase in inflation in recent months the calculation may have changed.

“If inflation is a political liability for Biden, it favors continuity at the Fed,” said Ed Campbell, portfolio manager and managing director of PGIM Quantitative Solutions.

Campbell argued that the market would see Brainard as being even more dovish, that is, inclined to keep interest rates lower for longer than Powell.

Wall Street wants a “hawk” to fight inflation

A dovish policy may not be what the market is looking for now that the Fed is in the process of reduction of the bond purchase program which helped keep long-term rates low.

Many investors also expect the Fed to start raising short-term interest rates, which have been at zero since the pandemic began, next year to fight inflation.

Biden has made it clear that rising prices are a pressing economic concern for his government.

“Everything from a gallon of gas to a loaf of bread costs more and that’s worrying,” Biden said earlier this month. “A lot of people are still unsure about the economy and we all know why. People see higher prices.”

With that in mind, choosing Brainard over Powell could have pissed off more moderate Democrats as well as the Republicans Biden will need to ensure his choice is confirmed in the Senate.

“Brainard’s chances were going up when many thought it was presumably better not to tighten interest rates too quickly,” said Daniela Mardarovici, co-head of multi-sector fixed income at Macquarie Asset Management in the United States. “Biden’s comments on inflation [mudaram] that balance.”

There’s another reason why Powell is a more welcome choice now than Brainard. none other than Janet Yellen, the current secretary of the Treasury who lost her job as Fed chairman when the former president Trump decided to name Powell instead of giving her a second term, praised his replacement.

Yellen praised Powell in an interview with CNN in October, saying that “the regulation of financial institutions has been greatly strengthened” under the supervision of the current Fed chairman.

Mardarovici said it is “not insignificant” that the widely respected Yellen supported Powell. This may also have helped to influence Biden’s thinking.

*(Translated text. Click here to read the original, in English)