Powell’s new term at the Fed means stability for investors

The election of Jerome Powell to continue as chairman of the Federal Reserve (Fed) gives global investors stability and some predictability, as the central bank prepares to reduce its asset purchases and start raising interest rates.

Many investors expected Powell, who was named president by Donald Trump in 2017, to be re-appointed by Joe Biden for another four-year term. The Democratic president proposed it on Monday for another four years, and Lael Brainard, who was the other candidate, for the position, of vice president.

Biden He also has to fill three vacancies at the Fed, including that of vice president of supervision, and plans to do so in early December.

The current mandate of Powell, which ends in February 2022, has been positive for risk assets, as the S&P has gained 69.7% since its appointment on February 5, 2018 and has broken a series of new records, in part helped by the measures emergency that the Fed put in place in response to the coronavirus pandemic.

“My reaction is one of relief“, said Peter Salt, presidente de Chase Investment Counsel. “It was a steady hand, I think people generally liked the policies that he pushed since (COVID-19) became a problem”.

Tuz said that Powell era “loved by both parties and has been a fairly stable force”.

Yields on US government bonds, which move inversely to prices, rose on the news, and those on two- and five-year Treasuries reached their highest levels since early 2020. The dollar extended gains versus a basket of currencies and the S&P 500 opened higher.

Powell had always been the favorite, but there were doubts after his odds in the betting markets fell after strong criticism of his performance by progressive Democrats and a scandal over activity in the markets by Federal Reserve officials.

The PredictIt online gambling website looked at Powell a 79% chance of being confirmed by the US Senate on Monday morning, versus a 90% chance on September 12, while the odds that Fed Governor Lael Brainard would be elected they had risen to 23% from a low of 6% in September.

While the leadership of the US central bank is always important to markets, Biden’s decision takes on greater significance this year as the Fed begins to reduce its monthly purchases of $ 120 million worth of bonds. At the same time, it faces a historic rise in inflation as global supply chains continue to be disrupted by the coronavirus pandemic.

“Markets are going to take this as a sign of relief”Said Robert Pavlik, Senior Portfolio Manager at Dakota Wealth Management.

Pavlik said that Brainard taking on the role of vice president “at least it puts some kind of pressure on Powell not to rush to raise rates. “

Brainard, who was nominated to the Fed’s board by former President Barack Obama in 2014, is widely viewed as more dovish than Powell in part because of her advocacy to keep monetary policy super-lax until the job recovery has advanced further. .

Some investors were nervous because they expected an appointment earlier, as has been the case with previous announcements.

Powell was nominated by former President Donald Trump on November 2, 2017; the Secretary of the Treasury of the United States, Janet Yellen, was appointed by Barack Obama on October 9, 2013, and Ben Bernanke, by George W. Bush on October 25, 2005 and then on August 25, 2009.

After the nomination, Powell it will have to be reviewed by the Senate Banking Committee before moving to a vote in the full Senate, where a simple majority will be required.

Powell he has done more than any recent Fed chairman to cultivate relationships on Capitol Hill, meeting regularly with members of both parties. At least one Democratic member of the Senate Banking Committee, Jon Tester of Montana, has endorsed Powell for a second term, while another Democrat, Elizabeth Warren of Massachusetts, has said she would object. Most observers believe Powell will win the backing of most, if not all, Republicans.

The appointment of the Fed chairman comes as Democrats are trying to pass a social spending bill that is central to the government’s economic agenda.

Warren has also asked the US Securities Market Commission to investigate the operations of major local central bankers, including that of two Fed members who resigned after public protests over their operations.