Biden Selects New “Top Economic Adviser”

It’s widely expected that U.S. President Joe Biden will name Federal Reserve Vice Chair Lael Brainard to the White House’s top economic policy position this week. 📝

She will replace White House National Economic Council (NEC) Director Brian Deese, who recently resigned. Additionally, Jared Bernstein will likely replace Cecilia Rouse as chair of the Council of Economic Advisers. And many expect the Labor Department’s chief economist, Joelle Gamble, to be made a deputy NEC director.

In her new position, Brainard will advise Biden on policy and personnel decisions and coordinate policy-making across executive branch agencies. Many speculate her long career in government could set her up to take Janet Yellen’s place as Treasury Secretary if Democrats win reelection in 2024. 🗳️

As a member of the Federal Open Market Committee (FOMC), Brainard recently presented her colleagues with a marginally less aggressive monetary policy case. Her concerns are that if the Fed overtightened in its fight against inflation, it could lead to economic difficulties on the back end of that policy decision. She’s also known for consistently opposing various measures to ease financial regulations between 2018 and 2020.

Despite the position being all but officially confirmed, the market’s response was muted. This could suggest people are not rushing to speculate on what this means for future economic policy. There are bigger fish to fry at the moment. 🤷

While we’re on the subject of government officials, there were two more announcements today. 📰

First is that the last remaining Republican FTC Commissioner, Christine Wilson, resigned from her post. She stated that Democratic Chair Lina Khan’s “disregard for the rule of law and due process.” was her primary reason. The vacancy means President Biden can nominate two commissioners, though neither can be a Democrat.

Secondly, California Democratic senator Dianne Feinstein says she will retire at the end of her current term. That opens the door for representatives Adam Schiff and Katie Porter, California Democrats, to fight for her seat. At 89, Feinstein is the oldest sitting U.S. senator and longest-serving California senator. ⚔️

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International Central Banks Follow Suit

Yesterday the U.S. Federal Reserve raised interest rates by 25 bps and set the stage for ongoing rate increases as it continues to battle inflation. 📰

Today, we heard from the European Central Bank (ECB) and Bank of England (BOE), which also continued tightening. Let’s see what they had to say.

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Risks To The Rate Cut Thesis

One of the big themes we’ve discussed for the last four months has been the Fed cutting rates in 2024. However, there’s been a major disconnect between the market’s expectations and the Fed’s guidance since November. That disconnect made today’s Fed decision and commentary tricky for the market to digest. Let’s talk about why. 🤔

First off, going into this year, the Fed fund futures market was anticipating six rate cuts during 2024. Meanwhile, the Fed’s guidance in December suggested the central bank was estimating just three cuts during the year, as it believes there are still upside risks to inflation.

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“Ongoing Rate Increases Will Be Appropriate”

Since the December meeting, commentary from the Fed’s members hinted at smaller rate hikes ahead, as did the economic data. The remaining questions were how high would the Fed take rates before pausing and how long will it need to leave them there before inflation makes a sustained move towards the 2% target? 

As a result of that information, the bond market was pricing in a 25 bp hike at today’s meeting, another in March, and then a pause at the May meeting. And today, Jerome Powell and the Federal Open Market Committee (FOMC) unanimously delivered exactly what was expected.

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A “Pause” That Refreshes

Today’s big story was the Federal Reserve’s interest rate decision and projections, so let’s jump right into it. 👇

First, we’ll start with the market’s expectations. Coming into the decision, the bond market was pricing in a roughly 93% chance of a Fed “pause” today, with only 7% expecting another 25 bp hike. And…that’s exactly what we got. However, the devil is in the details. 🔍

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