• President Biden announced the reappointment of Jay Powell as Fed Chair.
• Biden also announced the nomination of Lael Brainard as Vice Chair.
• Both should easily be confirmed.
• There are still three open seats on the Fed board, including Vice Chair for Supervision.
• Monetary policy is unlikely to change with the announcement. The Fed will continue to reduce its purchases of long-term assets through mid-2022. PNC expects the next increase in the fed funds rate to come in September 2022.

In a widely expected move, President Biden Monday morning nominated Jerome “Jay” Powell for a second term as Chair of the Board of Governors of the Federal Reserve System. Powell was previously appointed chair by President Trump in 2018.

Powell has done an excellent job supporting the economy during the recovery from the Viral Recession, with real GDP back above its pre-pandemic level, and employment recovering much faster than initially expected. However, inflation has also been higher than expected. The White House statement announcing the decision said “Chair Powell has provided steady leadership during an unprecedently challenging period, including the biggest economic downturn in modern history and attacks on the independence of the Federal Reserve.”

At the same time, President Biden nominated Lael Brainard to be Vice-Chair of the Fed; she is currently on the Board of Governors. Brainard was Biden’s obvious choice as Chair were he not to renominate Powell. There had also been speculation that Biden would appoint Brainard to be Vice Chair for Supervision, in charge of supervising and regulating the banking system. That position become open in October with the expiration of the term of Randal Quarles. President Biden said that he will announce a pick for Vice Chair for Supervision, and to the other two open spots on the Board of Governors, beginning in early December.

The decision to renominate Powell will likely reassure financial markets. Powell has been a steady hand during an incredibly trying time for the economy and the financial system. He has decades of financial market experience in the public and private sectors and has generally received high marks for his handling of the economy during the pandemic. However, he has received criticism from the right, over current high inflation, and the left, over concerns that he has been too lax on banks and has ignored climate change. In addition, two regional Fed presidents were recently forced to resign over ethical concerns under Powell’s watch.

Differences between Powell and Brainard on monetary policy have been slight, but Brainard has generally been stricter on the banking industry than Powell. It was something of a surprise move that Brainard was named Vice-Chair, and not Vice Chair for Supervision.

Powell is a Republican and should easily be confirmed with bipartisan support. Brainard would have faced a more difficult confirmation process as Chair, but as Vice-Chair should also easily win confirmation.

With Powell at the helm of the Fed and Brainard as the number two, monetary policy should remain unchanged. Earlier this month the Fed started to reduce its purchases of long-term Treasurys and mortgage-backed securities; these purchases put downward pressure on long-term interest rates and were instituted in the wake of the pandemic. Those purchases will wrap up in mid-2022. In September 2022 PNC expects the Federal Open Market Committee to raise the federal funds rate by 25 basis points. The fed funds rate has been in a range between 0.00% and 0.25% since March 2020, when the FOMC cut the rate swiftly in the face of the pandemic.

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