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Biden’s dilemma over the Federal Reserve presidency

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Joe Biden received them both in the Oval Office, the formal interview to decide who will be the next Federal Reserve leader. The outgoing chairman, Jerome Powell, looking for reconfirmation. And Lael Brainard, the senior executive of the Central Bank emerged as the most accredited alternative candidate. On the one hand, the moderate Republican promoted to head of the Fed by Donald Trump but whose clashes with the former president became legendary and whose stature has grown with the response to the pandemic crisis. On the other hand, the veteran democratic economist with social and environmental sensitivity, appointed to the Central Bank by Barack Obama in 2014 after being undersecretary of the Treasury for foreign affairs.

Biden’s talks with Powell and Brainard

Biden’s talks became the final act before the appointment, scheduled for the weekend or at the latest by Thanksgiving on Thursday, November 25. A choice between absolute continuity or a new face, with the bets of operators and analysts who favor Powell and Brainard who, however, presses. The approval by the Senate seems certain for both: “I’m sure, they are clearly qualified,” said Democratic Senator Sherrod Brown, who chairs the Banking Commission of the Upper House. Also because it is actually a duel between close collaborators, which promises to avoid traumas at the top of the Fed: over the years Powell and Brainard have seemed aligned on key monetary policy strategies, attentive to concerns of expansion and balanced prosperity, of economic recovery and of ‘occupation.

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The challenges for the US central bank

The stakes, however, are equally high today and it explains Biden’s dilemmas. The Fed is dealing with a challenging economic horizon: inflationary pressures, in particular, have cast doubt on the cautious step taken so far to return from stimulus policies, causing hikes in interest rates to be more aggressive than imagined. in 2022. And the leadership of the future Fed chairperson, the effectiveness in calculating a route in the cost of money between the Scylla of price spirals and the Charybdis of damage to growth or recessions, could prove decisive for the fate of Biden himself. Its recent drop in polls is largely linked to economic tensions.

Both candidates have solid credentials: while 68-year-old Powell, taken out of private equity, has proven himself in the field, 59-year-old Brainard has Masters and PhDs from Harvard followed by steps to McKinsey and MIT before making a debut in politics under Bill Clinton.

The differences between the two candidates

The choice has other potential repercussions. Differences between the two have emerged on a central aspect of Fed powers, financial regulation. Brainard was the most authoritative voice in the central bank in favor of screw turns, in the presence of Powell’s lighter hand. This is why his promotion has become dear to the progressive currents of the Democrats. And not only them: the former head of the banking authority Fdic, Sheila Bair, underlined the strenuous battle waged by Brainard against the weakening of the Wall Street reform triggered after the debacle of 2008, the Dodd-Frank Act and the Volcker Rule. Brainard is also dear to the left for its commitment to climate change: it has proposed monitoring the financial system and guidelines for banks in order to better manage the greenhouse effect risks, denouncing the US delays. Finally, Brainard has shown greater dedication to new frontiers of innovation such as digital currencies: it has shown itself to be cold on private crypto currencies but in favor of the adoption of a digital dollar.

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