What are investors looking for before the election of the next Fed chairman?

FILE IMAGE Federal Reserve Chairman Jerome Powell poses for a photo with Central Bank Governor Lael Brainard at a Chicago Federal Reserve event in Chicago, USA, June 4, 2019. REUTERS / Ann Saphir

NEW YORK, Nov 12 (Reuters) – The lack of news on who will nominate US President Joe Biden for the chairmanship of the Federal Reserve is causing uncertainty among investors at an important time, as the central bank prepares to Reduce your asset purchases and start raising rates.

Many investors are hoping that Fed Chairman Jerome Powell, who was nominated for the job by former President Donald Trump in 2017, will be appointed for another four-year term.

Still, it is not considered safe. Biden is still weighing whether to keep Powell as president or promote Fed Governor Lael Brainard, a government official said Wednesday.

These are some of the questions investors may ask themselves.


The PredictIt online gambling website https://www.predictit.org/markets/detail/7398/Whom-will-the-Senate-next-confirm-as-Chair-of-the-Federal-Reserve overlooked Powell Thursday a 74% probability of being confirmed head of the Fed by the Senate of the United States, whereas those of Brainard were of 26%.

Based on recent announcement history, the candidate should already have been chosen. Powell was nominated by Trump on November 2, 2017; Janet Yellen, now US Secretary of the Treasury, was nominated by President Barack Obama on October 9, 2013 and Ben Bernanke, by George W. Bush on October 25, 2005 and renamed on August 25, 2009.

Whoever is nominated by Biden will first be scrutinized by the Senate Banking Committee before moving to a vote in the full Senate, where he needs a simple majority.

Powell, a Republican, has done more than any other 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, has endorsed Powell for a second term, while another Democrat, Elizabeth Warren, has said she would object.

Most observers believe Powell would win the backing of most, if not all, Republicans.


While the leadership of the United States central bank is always important to markets, Biden’s decision takes on more significance this year as the Fed announced plans to begin reducing its monthly purchases of $ 120 billion worth of bonds. .

At the same time, the Fed is monitoring a historic rise in inflation as global supply chains continue to be disrupted by the coronavirus pandemic. Some investors have said they would like to maintain the status quo to ensure predictability.

In addition, Powell’s current tenure, which ends in February 2022, has proven positive for risk assets, as the S&P has gained 74.5% since his appointment on February 5, 2018 and has reached a series of new records, in part because of the emergency measures the Fed launched in response to the coronavirus pandemic.


Brainard, who was appointed to the Fed board by former President Obama in 2014, is considered much more dovish, or a supporter of a more expansionary monetary policy, than Powell, in part because of his insistence on waiting for further progress. in the recovery of employment before withdrawing monetary aid to the economy.

However, while more expansionary policies may be better for riskier assets like stocks, investors have expressed caution about a rider switch at this point in the race to recover from the pandemic.

Some think that a change in the rudder risks misinterpreting the Fed’s monetary policy and could increase volatility.


A change in the top leadership would also have consequences for Wall Street regulation on a number of issues, from bank capital and fair lending to climate change risks and cryptocurrencies.

In the past four years, Brainard has opposed many changes to deregulate pushed by Vice President of Oversight Randal Quarles and backed by Powell, and many on Wall Street expect him to be much tougher on the industry if he gets the job.

“Substituting one ‘dove’ for another would not necessarily change the prospects for monetary policy, but would put more emphasis on issues such as banking regulation and climate change,” wrote analysts at Societe Generale.

(Reporting by David Randall; additional reporting by Michelle Price; Edited in Spanish by Javier López de Lérida)


Leave a Reply

Your email address will not be published. Required fields are marked *