Feb 14 (Reuters) - President Joe Biden is expected to name Federal Reserve Vice Chair Lael Brainard and Jared Bernstein as his top economic advisers after markets close on Tuesday, as the Democratic president aims to convince skeptical Americans his economic policies are working and oversees trillions in new federal spending.
Brainard's switch from the independent central bank to a White House role comes as the Fed navigates extensive challenges of its own as it fights to bring down inflation, leaving an intellectual and political hole at a key moment.
Brainard, an experienced fiscal and monetary affairs official, would replace White House National Economic Council (NEC) Director Brian Deese, who has announced his resignation, two sources said.
Biden is also expected to elevate Bernstein, a trusted confidant dating back to his vice-presidency to replace Cecilia Rouse as chair of the Council of Economic Advisers, sources said. Rouse, the first Black American to hold the post, heads back to Princeton University in March, after helping steer the U.S. economy through high inflation to record job growth.
The White House declined to comment. Bloomberg News first reported Biden had finalized his decision on the expected changes.
Biden's overhaul of his top economic team comes as the Fed is still trying to achieve the Holy Grail of monetary policy - a 'soft landing' that involves tamping down inflation without causing a recession. By the Fed's preferred measure, inflation is running more than twice its 2% target rate.
On Tuesday, data showed consumer prices rose in January but posted their smallest annual rise since October 2021, a sign that goal is in sight.
DEBT LIMIT FIGHT
The next NEC director and CEA chair will help shape the Democratic Biden administration's economic policy, from executive orders to congressional spending bills, and in particular staving off a U.S. default in the face of a hostile U.S. House of Representatives now controlled by the Republicans.
Republicans say they won't raise the statutory U.S. debt ceiling without cutting future spending; the White House says it won't discuss spending cuts without a debt ceiling vote first.
Treasury Secretary Janet Yellen said on Jan. 19 that the United States has reached its current $31.4 trillion borrowing cap, but can continue paying its bills until June by shuffling money between various accounts. Investors have warned edging closer to that deadline could have dire market repercussions.
Bernstein told a think tank audience in Washington last week that Republican efforts to "weaponize" the needed boost in the debt limit was "especially reckless" at a time when the economy was slowing and inflation was still coming down.
Both he and Brainard argue labor market disparities are curbing the country's long-run growth potential; neither have in-depth experience negotiating with hostile lawmakers.
One of the biggest priorities will be overseeing about $1.5 trillion in spending on infrastructure, manufacturing and green tax credits passed over the past two years as infrastructure, inflation and semiconductor chip bills.
BRAINARD LEAVES HOLE AT FED
Brainard, a Harvard-educated Democrat, has been an economic heavyweight at the central bank, known for her meticulous and thorough preparation, and particular expertise on global economics. It likely means a key role remains unfilled for months at an especially tricky time for the central bank.
During almost a decade there, she extended her influence across both monetary policy and financial regulation.
As a top Treasury official during the Obama administration, Brainard led negotiations with G20 countries, including China, on now long-established G20 communique language to avoid competitive devaluation of currencies and pursue policies to reduce excessive current account imbalances.
While Biden decided in late 2021 to renominate Fed Chair Jerome Powell, a Republican, to the top position, it was twinned with the elevation of Brainard to the No. 2 slot, ensuring a counterweight on monetary policy and regulation. Unlike Brainard, a PhD economist, Powell is an investment banker and lawyer by training.
A bane of Wall Street, Brainard has also pushed the Fed to take more actions on requiring banks to account for the risks of climate change and has been the most high-profile supporter of a central bank digital currency, both of which have pitted her against both Powell and other senior colleagues in scope and ambition.
BIDEN ECONOMIC MESSAGE SEEN AS WEAK
While the U.S. economy is out-performing other rich nations, and job creation is at a record, Biden's approval rating remains low and his performance on the economy is seen as weak.
In his State of the Union Speech last week, Biden doubled down on pledges to rout 'trickle down' economics from policymaking and hit out at companies for profiteering.
Bernstein last week conceded the White House's early description of inflation as "transitory" had missed the mark.
He said the administration was keeping a close eye on energy prices, citing tight refinery capacity and China's reopening as possible pressure points.
Economic data show inflation is moderating after spiking to a 40-year high last summer, and unemployment is at its lowest rate in over 53 years, but the overall mood is still mixed, economists and pollsters report, with Biden’s approval ratings hovering at just over 40%.
Annual inflation as measured by the consumer price index dipped from about 9% in June to 6.4% as of January.
