Fed Watch

Scandal May Have Damaged Powell’s Chances For Renomination, Taper Seems Imminent

As the complexity of the ongoing legislative negotiations continue, the chances for Lael Brainerd ascending to Powell’s chairmanship is probably rising. We think the Biden Administration would prefer to keep Powell given the President’s nature, but the progressive wing of the party has had several setbacks legislatively and in the complex world that is Washington, he could end up in some ways being a victim of his own success.

In other words, the strength of the economy, which is in no small part due do the extraordinary efforts of Mr. Powell, may itself make him a more convenient sacrificial lamb. There is, however, always some political value to keeping him around if inflation gets out of control. He could prove a useful scapegoat in this event against an issue that has been the bane of incumbents.

Lael Brainerd would be the progressive choice given her stance on inequality and her considerable efforts to address climate change through the supervisory process, namely the Dodd-Frank Act stress testing requirements. So, in a way the very reason that Elizabeth Warren and other progressives are upset with Powell overseeing de-regulation is actually probably best rectified by Lael Brainerd from a policy perspective.

Betting markets have declined from recent highs but s...

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