It's not a slam dunk for Jerome Powell to get a second term: strategist

Brian Gardner, Stifel Chief Washington Policy Strategist, comes to Yahoo Finance Live to outline what we can expect from the Fed over the next few years and the fate of Jerome Powell as Fed Chairman.
Video transcript
JULIE HYMAN: All right, let's talk about something else that may be difficult to predict and that is the composition of the Federal Reserve. But our next guest tried. He is Brian Gardner, Stifel Chief Washington Policy Strategist. Brian, I'm not going to ask about your lawn situation. We'll stay with the Federal Reserve.
So, you know, we have some prominent Fed members whose terms in the Fed either as voting members or altogether are expiring in the next few years. Let's just start with the Tippity top, right? Let's start with Jay Powell. His term is up, what, in 2022. And do you think he will be reappointed or not?
BRIAN GARDNER: Will likely be renamed. But it's not a slam dunk. And I think the markets seem to be acting like a slam dunk and he's definitely going to get a second term. If you look back over the past 40 or 50 years, that's the norm. New presidents usually appoint the incumbent Fed chairman. President Trump with Janet Yellen, that was the exception.
So keeping Powell goes back to what really is the latest norm, but there is a lot of pressure in democratic circles to put your own person down. You're progressive, more of a dove, looking at social factors, diversity, inclusion and things like that. So getting a second term isn't a slam dunk for Powell. I think it's better than 50-50 but boy I wouldn't go over 50-50 much.
BRIAN SOZZI: Brian, shouldn't it-- should it be a slam dunk? Is it better to have Powell on board the ship if they are thinking of hike rates and cut bond purchases sometime in 2023?
BRIAN GARDNER: Look, if you look at it from the government and policy position of 2022 and beyond, I think it makes a lot of sense to keep Jay Powell with you. He's a well-known figure. He has a good relationship with the finance minister. He's got on good terms up on Capitol Hill. And because he's a household name, if you go through the mid-term elections and watch the 2024 elections, you know what you're getting and what you're getting.
So I think there's a lot for Powell. At the same time, the opening of the Fed chairmanship doesn't happen too often. And it's kind of a four-year opportunity to really put the stamp on the Federal Reserve. And for progressives struggling against government on a myriad of other issues like infrastructure and taxes, I think they will go out of their way to include themselves. Now, of course, as always in politics, you have to compromise to keep Powell and take advantage of the other three options. There will be three more openings at the Fed. Use these to fill them in with progressive values ​​and still start moving the Fed in a more moderate direction, with Jay Powell leading them. Maybe this is the endgame here.
MYLES UDLAND: Yeah Brian, maybe step back a little, how much of a political football is the Federal Reserve right now? You know, after the financial crisis, it became kind of a boogeyman. They had people like Rand Paul and his father. Rand Paul becomes known and criticizes the Fed. Today the situation is not quite the same. Is there a way for Fed officials to just work quietly, which I sure would rather do, you know, within the larger DC infrastructure.
BRIAN GARDNER: No, I think the times when people worked quietly are actually over. At your point, Myles, there is certainly less pressure. There is less controversy about the Fed after the financial crisis. And I think Jay Powell did a good job during the pandemic. This is how he increased his credibility. It has increased the Fed's credibility.
But the Fed has got involved in issues outside of its legal mandate - the legal mandate of maximum employment and price stability. You deal with social issues. They were pushed to the climate. They were pushed towards diversity and inclusion. And that, by definition, naturally brings them into political controversy.
So I don't think the Fed can get out of politics any more. It's a political being. And it's deeply ingrained in American politics today, although I think its credibility holds true in Washington - some investors, in my opinion, will disagree with their market position. But in Washington, I think the Fed's credibility has regained some of its luster.
JULIE HYMAN: Brian, I'm curious, aside from Jay Powell, the rest of the Fed's composition, whether there is a risk, particularly for the markets, of changes in the next few years that could potentially make the transition to tapering or to higher rates - I don't know - question it at all or change how it will look.
BRIAN GARDNER: In addition to the Powell seat, there are potentially three more seats open. There is currently one vacancy. The term of office of the Vice-Chairperson Clarida ends in January. And the vice chairman of Supervision Quarles is likely to retire by the end of the year. And I won't go into the details. We just leave it that way that he'll probably leave by the end of the year. So there is the possibility of three places.
Now they could call Governor Brainard to Quarles' position as Vise chairman for oversight. You still have three seats on the board to fill. And I don't know that they will be filled right away. But over time, I think you will see some candidates who are more reluctant to join the Fed.
And where Clarida and Quarle were close allies of Powell, there may be more deaf board members who are more concerned with maximum employment as part of the mandate than with price stability. And so Powell could be putting internal pressure to slow down the tapering and take a more cautious stance.
BRIAN SOZZI: And Brian, there are some reports this morning that there has been some kind of agreement or whatever you want to call it on a $ 1 trillion infrastructure package, just below the government's target of over $ 2 trillion. What do you hear about this as part of this $ 1 trillion plan, including tax hikes?
BRIAN GARDNER: So this part of the plan does not include any tax increases, especially not what the Biden government proposed in its two plans, the American Families Plan, the American Jobs Plan. There would then be a follow-up in a reconciliation package that would include the non-traditional infrastructure package, health care and other social spending programs. And that would probably be coupled with the control component.
And in my base case, there will likely be a tax hike in the fall. I just think it will be less than the government suggested. So I think when it comes to corporate tax, I'm looking for 25% instead of 28% on capital gains. I'm looking for something close to 28% instead of ordinary income. So probably less, but that is not directly part of the framework that is being negotiated today. And they're going to have a meeting with ... between the bipartisan group and the White House.
And just a word of caution - I mean, there were a lot of headlines last night. There's no deal here yet. There is an agreement on a framework, but a framework and an actual bill that leaders and members of both sides have signed is not yet ready. And so in the Senate, in the House of Representatives, there are just a lot of pitfalls where progressives could blow up where you can't get enough Republicans. But to get to your question, Brian, taxes are not part of the headlines for the day. But I think they are coming. Up again, but more slowly - to a lower level than previously suggested.
JULIE HYMAN: Yeah, as always, lots of back and forth. Brian Gardner, thank you very much for your perspective this morning. Great talk, Stifel Chief Washington Policy Strategist.

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