Biden’s chance to stamp the Fed
Sparks flew between two poles of non-government influencers in Washington – corporate lobbyists and lawyers clustered around K Street and the mostly progressive organizations buzzing a few blocks north of DuPont Circle.
Much of this comes from the struggle over the Biden administration’s infrastructure and social safety net legislation.
Now, however, a more personality-focused drama is hitting the DC scene. Thanks to chance and years of preparation by a conservative legal machine, Donald Trump was able to put a right-wing imprint on the United States Supreme Court that could last for decades. Likewise, term expirations and resignations create an opportunity for Joe Biden to install a powerful block of governors at the Federal Reserve.
Political gamblers believe Biden will reappoint Jay Powell as Fed chairman before his term expires in February. Powell, although a Republican, has been fairly accommodating with Biden and the Democrats.
Its renewal could be a useful way to reassure market participants worried about rising inflation, an uncertain budget and the recently uncovered personal account transaction scandals among central bankers themselves.
Not everyone would be happy with a Powell reappointment, however. Influential progressive Democratic senators, especially Elizabeth Warren and Sherrod Brown, have been angry at the scandals and unhappy with the Fed’s measured deregulation of the banking and securities industries.
Lael Brainard, a Democrat appointed in 2014, has been the Progressive’s ally at the Fed. She has a classic liberal economist resume, with a Harvard PhD, an associate professor position at MIT, and a Clinton White House appointment. In the Bush years, it was parked at the Brookings Institution.
Under Obama, Brainard was appointed adviser to the secretary of the treasury, then under-secretary of the treasury. During her tenure, she served as the United States’ representative to G7 MPs and a member of the Financial Stability Board. Next, head for the Fed table.
Prior to Hillary Clinton’s loss to Donald Trump in 2016, there was talk of Brainard’s appointment as Clinton’s secretary of the Treasury. Brainard is registered as a contributor to the Clinton campaign. Then, when Biden was elected, speculation about a treasury secretariat for Brainard boiled again. And jumped.
The Biden presidency has followed a surprisingly gradual path. Enthusiasm for Brainard’s more prominent appointment to the Fed’s board of directors has gathered among the cadre of progressive economists.
The bet is still on Powell to be rolled over. But with the Fed’s board of governors reduced by pending resignations and retirements, it seems entirely possible that Brainard could be appointed and confirmed as vice chairman of oversight. That influential role just fell vacant this week as Randall Quarles stepped down.
It is therefore important to examine some of the areas in which Brainard has expressed a point of view on political issues. She is keenly interested in the increased use of central clearing in the Treasury spot markets. It also discussed in its public comments how the stability and resilience of the market could be improved with greater access to “all for all” platforms for buying and selling Treasury securities. This would mean that market liquidity comes from client orders that clear each other, rather than having price and volume jumps smoothed out using capital provided by dealers.
Brainard cautiously discussed the possibility of a “central bank digital currency,” a sort of public service crypto. In its own words, this would also reduce counterparty risk in payments, providing benefits for consumer protection and financial stability. She said that “one of the expected benefits is that a CBDC would reduce or even eliminate operational and financial inefficiencies, or other frictions, in clearing and settling payments.”
One of his most recent speeches planted his green flag on the Fed building, calling for more work on the financial risks of climate change.
Whether or not the vice president is Brainard’s ultimate position, the progressive philosophy is not going to go away. His supporters are playing a long game.