Fed chair pick up in the air

Editorial | Mary Ma 18 Nov 2021

It is either Jerome Powell or Lael Brainard when US President Joe Biden lets the world know toward the weekend who will occupy the Federal Reserve chair for the next four years.

If Powell is picked, it would be the status quo.

If it's Brainard, supervision of the financial services sector would be expected to be tightened together with a more aggressive agenda on climate for money lenders.

Powell and Brainard were reported to have visited the White House to see Biden for the job, after which punters gave the thumbs-up to Brainard in light of the longer time Biden had given her during the interview.

In terms of time, Brainard is obviously a step ahead of Powell in the race.

This is how the speculation currently goes. It's understandable as, before Biden speaks, anyone monitoring the development can only pick up on clues - no matter how trivial - during these otherwise normal days for Americans.

The question is this is no normal time. On one hand, the pandemic is still lurking. On the other, inflation is ramming ahead on the fast lane at a speed not seen in the past 30 years.

They are economically contradictory. If the Fed increases interest rates to press the brake on inflation, how will it affect the economic recovery that is just starting to pick up momentum? Will employers be reluctant to hire workers because they will have to pay more interest on their borrowings?

The dilemma facing the Biden administration is also facing other governments.

If the Fed does wrong, the outcome can be detrimental to the Democrats who are already fighting a tough battle in 2022 to hold on to their majority in Congress. Worse still, a wrong move on inflation could also herald a loss for the Democrats in the 2024 presidential election.

Even though Biden's age and health may not allow him to run for a second term, the Democrats are scared by the thought that Donald Trump may win his way back to the White House.

According to the US media, minutes of the Fed meetings over the years showed both Powell and Brainard voted in sync with each other on many issues - except on the subject of regulation and supervision of the financial sector.

They may also differ on the pace of incorporating the climate agenda into regulations.

However, are those the urgent issues that Biden must deal with now rather than later? The answer is obvious as the most pressing immediately is inflation and how to tame it without upsetting American voters.

In this light, the timely high inflation may save Powell.

Although Powell is a Republican, his affiliation did not stop then-president Barack Obama from naming him to the Fed's board of governors. He was later nominated by Trump to be the chairman. Powell has political enemies in either camp, but he is acceptable to both sides.

How will Biden choose? It is more than a personnel change.

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