Nominating Jerome Powell for a second term as US Federal Reserve chair may have gotten US president Joe Biden into some hot water with progressives, but the monetary policy outcome probably wouldn’t be all that different had Fed governor Lael Brainard been given the top position.
We asked a group of forecasters with a track record of accurate economic predictions when an interest rate liftoff would happen under a Fed led by Powell vs. one led by Brainard. Though they viewed Brainard as slightly more dovish, ultimately they predicted an interest rate hike in the second half of 2022 was the most likely scenario regardless of who of the two was at the helm.
“The difference between Powell and Brainard, as well as the power of the chairman (versus the rest of the Fed), has been overblown,” one forecaster wrote.
These predictions were not compiled using the tactics traditionally used by economists. They were made by forecasters polled by Good Judgment Inc., a firm that started off as a research project by two University of Pennsylvania professors. Their intention was to study forecasting and human judgment, but their approach was so successful that the project was spun off into a for-for profit company. It uses a version of the Delphi method for rapid forecasts. Under it, every participant makes a forecast on their own and describes their reasoning. Afterwards, everyone sees everybody else’s comments and forecasts—this is done anonymously, so as to judge them by their contents not the forecaster’s reputation. Then each participant has a chance to update their original forecast.
Good Judgment “superforecasters” accurately predicted that Powell would be Biden’s pick. This is where they are on the Fed’s next rate hike:
It makes sense that the Fed’s next interest rate hike would come at around the same time under both Powell and Brainard. As part of the Board of Governors, Brainard has been influencing Fed policy for seven years. And regardless of who fills the top post, that person doesn’t have the final word on interest rates.
“The Fed is like the Brezhnev-era Politburo,” wrote another forecaster. “There are greater constraints on the leader’s ability to drive policy unilaterally, whether it’s the general secretary within the Politburo or the chair within the FOMC.”
Others expected that with Brainard as chair, the central bank would raise rates later than if Powell kept his job, but only by a month or two. However, interest rates could rise much faster under certain scenarios, for example, if higher prices for housing push up inflation.
The Fed, wrote another forecaster, “could panic and accelerate their tightening, though this remains unlikely.”