A person shops at a grocery store on Nov. 11 in Los Angeles. The consumer price index rose 6.2% annually in October, the largest year-over-year increase since the period ending November 1990.
The ongoing rise in inflation may give Federal Reserve Chairman Jerome Powell a slight edge over other candidates as President Joe Biden mulls who he will pick to lead the central bank, analysts say.
The consumer price index rose 6.2% year over year in October, the largest 12-month increase since the period ending November 1990. Powell said Nov. 3 that he expects inflation to run much closer to the central bank's goal of 2% once ongoing supply constraints ease. Still, consumer inflation expectations are running well above the Fed's target. Median inflation expectations for about one year ahead climbed to 5.3% in September, according to the latest results from the Federal Reserve Bank of New York's Survey of Consumer Expectations. It was an all-time high for the survey.
Powell and Fed Board Governor Lael Brainard both met with Biden this month, Bloomberg News reported.
Powell is "viewed as slightly more hawkish compared to other potential nominees," said Edward Mills, a managing director and Washington policy analyst at Raymond James & Associates Inc., meaning he tends to advocate for tighter monetary policy to temper inflation. "Because there is as much confidence in Powell as there is, the support among Republicans is clearly there. If Biden chooses someone separate, that could be viewed as potentially further contributing to inflation. That quickly dries up any Republican support for that nominee."
Brainard is more "dovish" than Powell, according to Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, meaning she tends to advocate for looser monetary policy to support economic growth.
"The more dovish the candidate the more that people might feel that there's a risk of the Fed making a policy mistake at the margin," Stanley said.
But Gregory Daco, chief U.S. economist at Oxford Economics, sees less of a difference between the two leaders.
"With regards to either Powell or Brainard, I don't think that there would be much difference in terms of the relative policy perspective or policy positioning when it comes to monetary policy," Daco said. "I think both are strong supporters of the new flexible average inflation targeting framework, and both lean on the dovish side when it comes to monetary policy."
Ultimately, Powell is more likely to continue serving as chair, while Brainard is expected to serve as vice chair, according to Derek Tang, an economist at Monetary Policy Analytics.
"Support for Brainard is likely limited to Democrats, who barely control the Senate," he wrote in a note to clients. "Powell would preserve Fed independence and keep giving Biden some plausible deniability on inflation."
Complicating factors
The inflation environment has "given the opponents of Powell a little bit more ammo" because it is happening under his watch, Ian Katz, managing director at Capital Alpha Partners LLC, said in an interview.
And inflation is not the only Fed-related priority among Democrats. For the progressive wing of the party, tougher banking regulation remains paramount, he said.
Some Democrats have praised Powell, and he has a bipartisan history, having been appointed to a governor seat by former President Barack Obama and to the role of chair by former President Donald Trump.
"Once again Senator [Joe] Manchin [D-W.Va.] could be a key voice in the Senate on this," Mills said. "Attention has been on Senator [Elizabeth] Warren [D-Mass.] and her concerns about Powell, but it's Senator Manchin's concerns about inflation and Powell's bipartisan support on the Hill that tilt the odds in his favor."
"Powell's number one asset is the confidence that the market has in him … and number two, the bipartisan support he has in the Senate, who would be in charge of voting on any nomination," Mills said.