Explainer-What are investors focused on for the next Fed
chair?
Send a link to a friend
[November 12, 2021] NEW
YORK (Reuters) - A lack of news over U.S. President Joe Biden's pick for
Federal Reserve chair is introducing unpredictability for investors at a
crucial time, as the central bank prepares to taper its asset purchases
and start hiking rates.
Many investors have been expecting that Fed Chair Jerome Powell, who was
nominated for the role by President Donald Trump in 2017, would be
renominated for another four-year stint.
Still, it is not seen as a done deal. Biden is still weighing whether to
keep Powell as chair or elevate Fed Governor Lael Brainard to the post,
an administration official said on Wednesday.
Here are some questions investors may have:
Who, when, how?
Online betting website PredictIt gave Powell a 74% chance of being
confirmed by the U.S. Senate as of Thursday while the odds that Brainard
would be nominated were 26%.
![](http://archives.lincolndailynews.com/2021/Nov/12/images/ads/current/humanesociety_sda022411.png)
Based on recent historical announcements, a pick should have been made
by now. Prior announcements had come earlier in the calendar. Powell was
nominated by Trump on Nov. 2, 2017, Janet Yellen, now U.S. Treasury
Secretary, was nominated by President Barack Obama on Oct. 9, 2013 and
Ben Bernanke was nominated by President George W. Bush on Oct. 25, 2005
and renominated on Aug. 25, 2009.
Whoever Biden nominates will first be vetted by the Senate Banking
Committee before going to a vote in the full Senate, where a simple
majority would be needed.
Powell, a Republican, has done more than any recent Fed chair 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 one other Democrat, Elizabeth Warren of Massachusetts, has said
she would oppose him. Most observers believe Powell would get the
backing of most, if not all, of the Republicans.
Why is it important for markets?
While the leadership of the U.S. central bank is always important to
markets, Biden's decision takes on heightened significance this year as
the Fed has announced plans to start tapering its $120 billion in
monthly bond purchases. At the same time, the Fed is monitoring a
historic surge of inflation as global supply chains remain disrupted by
the coronavirus pandemic. Some investors have said they would like to
keep the status quo to ensure predictability.
[to top of second column] |
![](../images/111221PIX/2021-11-12T062824Z_2_LYNXMPEHAB0BO_RTROPTP_4_USA-FED-BRAINARD-INVESTORS_small.JPG)
Federal Reserve Chairman Jerome Powell poses for photos with Fed
Governor Lael Brainard (L) at the Federal Reserve Bank of Chicago,
in Chicago, Illinois, U.S., June 4, 2019. REUTERS/Ann Saphir
![](http://archives.lincolndailynews.com/2021/Nov/12/images/ads/current/graue_sda_042021.png)
Moreover, Powell's current term, due to run out in February 2022, has
proven positive for risk assets, with the S&P gaining 74.5% since his
appointment on Feb. 5, 2018 and hitting a series of new records in part
helped by emergency measures the Fed launched in response to the
coronavirus pandemic.
What will it mean for monetary policy?
Brainard, who was nominated to the Fed board by former President Obama
in 2014, is widely seen as more dovish, or favoring looser monetary
policy, than Powell in part because of her push to retain super-easy
monetary policy until there is more progress on job recovery.
However, while more dovish policies may be better for riskier assets
like stocks, investors have expressed caution about changing the horses
at this point in the race to recover from the pandemic. Some thought
that a change at the helm risked a misinterpretation of Fed policy and
could increase volatility.
What else could change?
A change at the top would also have consequences for Wall Street
regulation on a slew of issues from bank capital and fair lending to
climate-change risks and cryptocurrencies. Over the past four years
Brainard opposed many de-regulatory changes led by Vice Chair for
Supervision Randal Quarles and backed by Powell, and many on Wall Street
expect her to be much tougher on the industry if she gets the job.
"Replacing one dove by another would not necessarily change the outlook
for monetary policy but would place greater emphasis on aspects like
bank regulation and climate change," wrote analysts at Societe Generale.
(Reporting by David Randall; Additional reporting by Michelle Price;
Writing by Megan Davies; Editing by Andrea Ricci)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2021/Nov/12/images/ads/current/2021_lda_Businessdirectory.png) |