© Reuters. FILE PHOTO: Traders work as a screen to show the press conference of Federal Reserve Chairman Jerome Powell following the announcement of Federal Reserve interest rates on the floor of the New York Stock Exchange (NYSE) in New York, United States, September 18, 2019. REUTER
By David Randall, Lewis Krauskopf and Shreyashi Sanyal
NEW YORK (Reuters) – Biden’s election of Jerome Powell as chairman of the Federal Reserve gives global investors stability and predictability as the central bank prepares to cut bond purchases and raise interest rates.
Many investors had hoped that Powell, who was nominated for presidency by President Donald Trump in 2017, would be nominated by President Joe Biden for another four years. On Monday, Biden nominated 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 chairman. Biden also has three Fed seats to fill, including vice-chairman for oversight, which he intends to fill in early December.
Powell’s current tenure, slated to expire in February 2022, has proven to be positive for risk assets, with the S&P gaining 69.7% since being appointed on February 5, 2018 and breaking a series of new records, partly backed by contingency measures started in response to the coronavirus pandemic.
“My response is relieved,” said Peter Tuz, president, Chase Investment Counsel, Charlottesville, Virginia edition. ”
While Tuz said Powell “was liked by both parties, he was a pretty stable force”.
US Treasury bond yields, which are reversing prices, soared on the news, with two- and five-year Treasuries reaching their highest levels since early 2020. The dollar expanded gains against a basket of currencies, opening 0.4% higher. [.N]
Powell had always been the favorite, but he was viewed less as a slam dunk after his odds fell in the betting markets after harsh criticism of his performance from progressive Democrats and a trade scandal among Federal Reserve officials. [L1N2R020J]
The online betting website PredictIt gave Powell a 79% chance of being ratified by the US Senate Monday morning, up from 90% on the 12th, down from a 6% low in September.
While Federal Reserve leadership is always important to the markets, Biden’s decision gains momentum this year as the Federal Reserve begins cutting its monthly bond purchases by $ 120 million. At the same time, the Fed is facing a historic surge in inflation as global supply chains continue to be disrupted by the coronavirus pandemic.
“Markets will take this as a sign of relief,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.
Pavlik said that Brainard’s role of vice chairman “is at least putting pressure on Powell not to be too quick to hike rates”.
Brainard, who was appointed to the Fed’s executive board by former President Barack Obama in 2014, is widely viewed as more reluctant than Powell, in part because of her eagerness to maintain the super-easy monetary policy until further progress is made in restoring jobs.
Investors had grown nervous about Powell’s reappointment, and some said they expected it earlier in the calendar – as had been the case with previous announcements from the chairman.
Powell was named chairman on November 2, 2017 by former President Donald Trump, U.S. Treasury Secretary Janet Yellen was nominated by President Barack Obama on October 9, 2013, and Ben Bernanke was nominated by President George W. Bush on October 25, 2005 and on Renamed August 25, 2009.
Once nominated, Powell must be reviewed by the Senate Banking Committee before he can vote throughout the Senate where a simple majority would be required.
Powell has done more than any Fed chairman lately to cultivate relationships on Capitol Hill and meet 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, said she would oppose him. Most observers believe that Powell would have the support of most, if not all, Republicans.
The Fed chairman’s nomination comes as the Democrats seek to enforce a groundbreaking social spending bill that is central to the government’s economic agenda.
Warren has also called the Securities and Exchange Commission to investigate the trades of leading US Federal Reserve officials, including two Fed bank presidents who stepped down after public outcry over their deals.
(Reporting by David Randall; additional reporting by Stephen Culp and Shreyashi Sanyal; writing by Megan Davies; editing by Nick Zieminski)