Fed’s Lael Brainard to replace Brian Deese as Biden’s key economic adviser

President Joe Biden is expected on Tuesday to name Federal Reserve Vice Chair Lael Brainard to replace Brian Deese as his top economic advisers, a source familiar with the matter said, as Biden aims to convince skeptical Americans his policies are working.

Brainard’s switch from the independent central bank to a White House role comes as the Fed navigates extensive challenges of its own as it fights to bring down inflation, leaving an intellectual and political hole at a key moment.

Brainard, an experienced fiscal and monetary affairs official, would step in as director of the White House National Economic Council (NEC) for Deese, who has announced his resignation.

In addition, Biden is expected to elevate trusted confidant Jared Bernstein to replace Cecilia Rouse as chair of the Council of Economic Advisers, the source said. Rouse, the first black American to hold the post, heads back to Princeton University in March, after helping steer the US economy through high inflation to record job growth.

The White House declined to comment. Bloomberg News first reported the changes.

Biden’s overhaul of his top economic team comes as the Fed is still trying to glide inflation down without causing a recession. By the Fed’s preferred measure, inflation is running more than twice its 2% target rate.

DEBT LIMIT FIGHT

The next NEC director and CEA chair will help shape the Democratic administration’s economic policy, from executive orders to congressional spending bills and averting a US default in the face of a hostile House of Representatives now controlled by the Republicans.

Republicans say they won’t raise the statutory US debt ceiling without cutting future spending; the White House says it won’t discuss spending cuts without a debt ceiling vote first.

Treasury Secretary Janet Yellen said on Jan. 19 that the United States has reached its current $31.4 trillion borrowing cap, but can continue paying its bills until June by shuffling money between various accounts. Investors have warned edging closer to that deadline could have dire market repercussions.

Bernstein told a think tank audience in Washington last week that Republican efforts to “weaponize” the needed boost in the debt limit was “especially reckless” at a time when the economy was slowing and inflation was still coming down.

Both he and Brainard argue labor market disparities are curbing the country’s long-run growth potential.

One of the biggest priorities will be implementing trillion of dollars in spending on infrastructure, manufacturing and green tax credits, and showing Americans how that spending will benefit them at a time when inflation is still a huge concern.

BRAINARD LEAVES HOLE AT FED

Brainard, a Harvard-educated Democrat, has been an economic heavyweight at the central bank, known for her meticulous and thorough preparation, and particular expertise on global economics. It likely means a key role remains unfilled for months at an especially tricky time for the central bank.

During almost a decade there, she extended her influence across both monetary policy and financial regulation as she combined her political savvy honed in previous White House and Treasury roles with economic heft.

While Biden decided in late 2021 to re-nominate Fed Chair Jerome Powell, a Republican, to the top position, it was twinned with the elevation of Brainard to the No. 2 slot, ensuring a counterweight on monetary policy and regulation. Unlike Brainard, a Ph.D. economist, Powell is an investment banker and lawyer by training.

A bane of Wall Street, Brainard has also pushed the Fed to take more actions on requiring banks to account for the risks of climate change and has been the most high-profile supporter of a central bank digital currency, both of which have pitted her against both Powell and other senior colleagues in scope and ambition.

TRANSITORY INFLATION

Bernstein last week conceded the administration’s initial description of inflation as “transitory” had missed the mark, but said he remained convinced that the boost in prices would prove to be temporary.

He said the administration was keeping a close eye on energy prices, citing tight refinery capacity and China’s reopening as possible pressure points.

Economic data show inflation is moderating after spiking to a 40-year high last summer, and unemployment is at its lowest rate in over 53 years, but the overall mood is still mixed, economists and pollsters report, with Biden’s approval ratings hovering at just over 40%.

Annual inflation as measured by the consumer price index dipped from about 9% in June to 6.4% as of January.