Biden administration officials have been studying speeches and commentary by Brainard, who’s seen as a more liberal nominee who hews closer to Biden’s economic agenda and is far more of a hawk on banking regulations. Nominating Brainard would win praise from progressive Democratic senators, but it would set up a bruising confirmation fight—potentially even a 50-50 vote in the Senate with Vice President Kamala Harris the tie-breaker.
While many senior Democrats have praised Powell, unified Democratic support isn’t a foregone conclusion. Senators Sherrod Brown and Elizabeth Warren have declined to say whether they would back him for another term, with both criticizing Powell’s handling of financial regulations on issues like bank-stock buybacks.
Several other openings are pending on the governing board, giving Biden a chance to put his stamp on the Fed and remake it after Trump’s five picks.
Besides Powell, Biden has the opportunity to replace the vice chair for supervision, who oversees bank regulations, a position now held by Randal Quarles and the vice chair post now held by Richard Clarida, along with an open seat on the Fed board.
Meantime, inflation—an economic phenomenon that barely registered in American politics for 40 years—represents a vulnerability in the 2022 midterm elections.
The most recent readings remain elevated: the consumer price index rose 5.4% in the 12 months through July, though it fell from the previous month for the first time since November.
The concerns revealed themselves this month when data showed that consumer sentiment fell in early August to the lowest level in almost a decade by one measure and U.S. retail sales slid in July by more than forecast.
“Inflation-linked assets should benefit significantly” if Brainard were nominated as Fed chair, Wells Fargo & Co. analysts including Mike Schumacher, head of macro strategy, wrote this month. They predicted a widening gap in yields between inflation-linked Treasuries and regular ones following such news.
The Wells Fargo team also said, however, “To be clear, we and the online markets still expect Powell to retain his seat.”
—With assistance from Eric Martin.
This article was provided by Bloomberg News.