Analysis: Powell’s renewal gives investors stability


Traders work as a screen showing Federal Reserve Chairman Jerome Powell’s press conference after the US Federal Reserve’s interest rate announcement on the floor of the New York Stock Exchange (NYSE) in New York , USA, September 18, 2019. REUTERS / Brendan McDermid

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NEW YORK, Nov. 22 (Reuters) – Biden’s choice of Jerome Powell to continue as Federal Reserve chairman gives global investors stability and predictability as the central bank prepares to cut back on asset purchases and start increasing its rates.

Many investors were hoping that Powell, who was appointed president by President Donald Trump in 2017, would be reappointed by President Joe Biden for another four-year term. On Monday, Biden appointed Powell for a second four-year term, with Lael Brainard, the Federal Reserve board member who was the other top candidate for the job, vice president. Biden also has three seats to fill at the Fed, including the vice president of oversight, and intends to secure them in early December. Read more

Powell’s current tenure, which is due to expire in February 2022, has been positive for risky assets, with the S&P gaining 69.7% since his appointment on February 5, 2018 and hitting a series of new records helped in part by The Fed’s emergency measures were launched in response to the coronavirus pandemic.

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“My reaction is a reaction of relief,” said Peter Tuz, president, Chase Investment Counsel, Charlottesville, Virginia. problem.”

While Tuz said Powell was “loved by both parties, he has been a fairly stable force.”

Yields on US government bonds, which move in the opposite direction of price, rose on the news, with those on two- and five-year Treasuries reaching their highest levels since early 2020. The dollar extended its gains against a basket of currencies and the S&P 500 opened about 0.4% higher.

Powell had always been the frontrunner, but he was seen as less of a slam-dunk after his odds fell in betting markets following strong criticism of his performance by Progressive Democrats and a trade scandal among officials. from the Federal Reserve. L1N2R020J

Online betting site PredictIt gave Powell a 79% chance of being confirmed by the US Senate on Monday morning, up from 90% on September 12, while the odds of Federal Reserve Governor Lael Brainard being appointed had passed at 23% compared to a minimum of 6% in September.

While the leadership of the U.S. central bank is still important to markets, Biden’s decision takes on added significance this year as the Federal Reserve begins to cut its $ 120 million in monthly bond purchases. At the same time, the Fed faces a historic surge in inflation as global supply chains remain disrupted by the coronavirus pandemic.

“The markets will take this as a sign of relief,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

Pavlik said Brainard taking on the role of vice president “at least puts some sort of pressure on Powell not to move too quickly with the rate hike.”

Brainard, who was appointed to the Fed board by former President Barack Obama in 2014, is widely seen as more accommodating than Powell, in part because of his willingness to maintain super-easy monetary policy until that there is more progress on the recovery of employment.

Investors had grown nervous about Powell’s reappointment, with some saying they expected it earlier in the schedule – as has been the case with the president’s previous announcements.

Powell was appointed President by former President Donald Trump on November 2, 2017, US Treasury Secretary Janet Yellen was appointed by President Barack Obama on October 9, 2013, and Ben Bernanke was appointed by President George W. Bush on October 25, 2005 and was renamed on August 25, 2009.

After the nomination, Powell will have to be considered by the Senate Banking Committee before going to a vote in the full Senate, where a simple majority would be required.

Powell has done more than any recent Fed chairman to nurture relations on Capitol Hill, meeting regularly with members of both sides. At least one Democratic member of the Senate Banking Committee, Jon Tester of Montana, backed Powell for a second term, while another Democrat, Elizabeth Warren of Massachusetts, said she would oppose him. Most observers believe Powell would get the support of most, if not all, Republicans.

The Fed’s presidential nomination comes as Democrats try to pass a landmark social spending bill that is at the heart of the administration’s economic agenda.

Warren also called the U.S. Securities and Exchange Commission to investigate transactions by major U.S. central bankers, including that of two Fed bank chairmen who resigned after public outcry over their transactions.

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Reporting David Randall; additional reporting by Stephen Culp and Shreyashi Sanyal; written by Megan Davies; edited by Nick Zieminski

Our standards: Thomson Reuters Trust Principles.


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