If Brainard Is The Next Fed Chair How High Will Gold Go?

If Brainard is the next Fed chair, how high will gold go?

US President Biden will choose the next chair of the Fed - and it might not be who the market is expecting. Lael Brainard could be a natural candidate for President Biden over incumbent Chair Powell based on policy and politics. Brainard’s nomination will drive markets, pushing gold beyond the $1900 level.

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While the two candidates do not differ significantly, Brainard is perceived as more dovish still; they both sing from the same song page on monetary policy and how best to support the economy. On inflation, both have followed a flexible average inflation targeting model favoring patience over sooner rate hikes. In the end, the decision will primarily be a political one as Biden needs to rally the party, and, politically, Brainard is a much stronger candidate than Powel. Many of the progressive Democrats have been staunchly opposed to Powell’s renomination.

One of the most outspoken, Elizabeth Warren, has called the chairperson a “dangerous man.”

Brainard appeals to the progressives in the Democratic party and could act to unify the now widely policy divided party aiding Biden to appear more committed to clamping down on Wall Street excesses. In addition, Brainard’s appointment would be a symbol of the administration’s dedication to gender equality.

 In addition, former President Trump appointed Powell, and it does little for Biden to align himself with a Trump appointee. If the economy continues to do well, Powell as Fed chair allows Republicans to claim responsibility. But, on the other hand, should there be significant economic issues, keeping Powell as chair will enable progressives to spin it as a Biden failure.

In contrast, Brainard is more aligned with Biden’s economic policy: more focused on regulation and slightly more dovish than Powell. She is also more focused on climate, an essential part of Biden’s agenda, especially coming right after the COP26 summit, where Biden reaffirmed a commitment to fighting global warming. Finally, and most crucially,

All this adds up to an unexpected conclusion: Biden will choose Brainard as the next Fed chair—a decision that will have a significant short-term dovish impact on markets. Upon Brainard’s nomination, the market will dive headfirst into inflation hedges as she will remain wedded to the Fed flexible inflation target. As well, it will suggest that Biden’s other Fed appointments will similarly be dovish. These expectations should lead to market fears of run-away inflation. The gold market, already nervous about inflation, will react strongly to these fears, and gold could temporarily break above $1900 in the wake of the announcement.