The policy differences between Jay Powell and Lael Brainard — the only names on Joe Biden’s shortlist for Federal Reserve chair — are narrow. The president was nevertheless sensible to prioritise continuity over change by renewing Powell for a second term. It is doubtful that picking Brainard would have had much impact on the speed with which the Fed plans to tighten in the near future, though the markets see her as mildly more dovish than Powell.
Either way, the Fed will start to withdraw its $120bn-a-month quantitative support for the US economy from next month, while futures markets have priced in two interest rate rises in 2022. Facing a potentially hazardous turning point for markets and the economy, Biden chose wisely. Together with Powell’s reappointment, Brainard’s elevation to vice-chair gives the impression of continuity in monetary policy with a more robust approach to regulation.
The Democratic left is unhappy with Biden’s decision, nonetheless. The gap between Powell and Brainard is far wider on bank regulation than on monetary policy. Elizabeth Warren, the Massachusetts senator, has called Powell “a dangerous man” for loosening capital and liquidity restrictions on US banks — moves that Brainard usually opposed. But political reality suggests the left’s disaffection will only improve the chances of a timely Powell confirmation in a 50:50 Senate.