President Biden decided on stability and asset markets approval. With Jerome Powell retaining the chair and Lael Brainard moving into the vice chair position, we see two immediate implications. The big one is that the power axis dominating the Federal Reserve Board remains in place with an uptick of power. Yellen-Powell-Brainard now run all of the Biden administration’s macroeconomic policy, with the natural signals for seamless cooperation between the Fed and Treasury.
A second takeaway from the announcement is the premium the move today places on the president’s economic policy speech tomorrow. We expect a tying together of pandemic response ($5.1 trillion in four quarters beginning March 2020) and fully funded infrastructure and social safety net investments ($2 – $2.5 trillion potentially this quarter) laying the necessary groundwork to promote sustainable growth. He might point to competition policy, macroprudential regulation of digital money and nonbanks, and supply chain repair as the targets of the non-fiscal side of Bidenomics. Inflation fighting will be the subtext. How convincingly depends on how much accountability risk Biden chooses to assume.
We expect little more than economic upside focus at 1:20pm ET when the president, Chairman Powell, and Governor Brainard appear together on camera. Attention then moves to the Senate Banking Committee, where we would think the White House and Senate Banking Chairman Sherrod Brown might want to keep these nominations together in committee and investors’ minds. This would allow continuity to be the administration’s December/January message. This leaves space for three other appointments next quarter allowing Biden to place his stamp on the independent institution. We expect no daylight between the eventual vice chair for supervision nominee and Vice Chair-designate Brainard.
