For Fed Governor Lael Brainard, the current CPI situation means her chances of becoming the next Fed chair are much slimmer, commentators said after the CPI release. That’s because a key component of the CPI — owners’ equivalent rent, or OER, the amount of rent you pay to replace a home you own with a rented one — has continued to rise since May, rising 3.1% in October from a year earlier, the fastest pace since May last year. And Brainard’s own dovish stance on inflation could spur prices to rise further, so the Biden administration may not want her at the helm of the Fed.
Inflation data is an important reference for the Fed’s actions. In its most recent meeting statement, in October, the Fed emphasized that the current high inflation was due to temporary factors. However, the Federal Reserve pays more attention to the PCE (Personal consumption expenditure price Index) than the CPI. In 2012, the Federal Reserve set the core PCE annual rate of 2% as the long-term inflation target, and since then, the PCE has been directly linked to the quantitative monetary policy. As Wall Street has noted, one big difference between the CPI and the PCE is the weight of the basket of goods, such as housing, which is 33% in the CPI and only about 16% in the PCE.
Biden will soon unveil his nomination for fed chairman. New sources suggest Brainard and current Fed Chairman Jerome Powell are the most likely nominees. Media reports last week said Mr. Biden met with the two men separately on Thursday.
Biden met Brainard at the White House last week to interview her for the Job of Fed chair, reports said Tuesday. According to a source, the interview went well and lasted about 90 minutes. Powell is not a shoo-in for fed chairman.
Treasury prices rose and yields retreated on The news Tuesday, with the 10-year yield briefly falling to 1.42%, its lowest level in nearly seven weeks. Elsa Lignos, global head of fx strategy at RBC Capital Markets in Toronto, commented that the preference for Brainard means lower dollar and Treasury yields, a knee-knee reaction that could exacerbate the Fed chair’s influence.
Also on Tuesday, on the political forecasting website Predictit, Brainard’s odds for fed chair rose to 30 per cent, up from Thursday’s recent low of 14 per cent, while Powell’s fell to 69 per cent from Friday’s recent high of 86 per cent. A Wall Street View on Wednesday found That Brainard’s chances had edged down to 29% and Powell’s to 70%.
In any case, Powell is still by far the front-runner.
Media comments last week suggested Brainard was the most likely choice if Biden was looking for a replacement instead of Powell. As a Republican, Powell is likely to be unpopular with the radical wing of the Democratic Party. But Powell enjoys broad support on Capitol Hill, as does former Fed Chair Janet Yellen, who is now Treasury secretary. Brainard has been more active than Powell on some issues, including financial services regulation, and could face more controversy ina closely contested Senate confirmation process.