What are investors focused on for the next Fed chair?

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NEW YORK (Businesshala) – The lack of news on US President Joe Biden’s selection of Federal Reserve chairman is introducing unpredictability to investors at a critical time, as central banks look to reduce their asset purchases and start raising rates. makes preparations.

FILE PHOTO: Federal Reserve Chairman Jerome Powell is photographed with Fed Governor Lyle Brainard (L) at the Federal Reserve Bank of Chicago, Chicago, Illinois, US June 4, 2019. Businesshala / N Sapphir

Many investors are hoping that Fed Chair Jerome Powell, who was nominated to the role in 2017 by President Donald Trump, will be re-nominated for a four-year term.

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Still, it is not seen as a complete deal. An administration official said Wednesday that Biden is still weighing whether to keep Powell as chairman or promote Fed Governor Lyle Brainard to the position.

Here are some questions that investors may have:

Who, when, how?

Online Betting Website PredictIt Here Powell had a 74% chance of being confirmed by the US Senate as of Thursday, while Brainard had a 26% chance of being nominated.

Based on the recent historical announcements, the election should have been done by now. Announcement had already arrived in the calendar. Powell was nominated by Trump on November 2, 2017, Janet Yellen, now US Treasury Secretary, was nominated by President Barack Obama on October 9, 2013, and Ben Bernanke by President George W. Bush on October 25, 2005. was nominated and re-nominated on 25 August 2009.

Whoever Biden nominates will first be screened by the Senate Banking Committee before being voted on in the full Senate, where a simple majority will be required.

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

Why is it important for markets?

While the lead of the US central bank has always been crucial to markets, Biden’s decision assumes significance this year as the Fed announces plans to reduce its $120 billion in monthly bond purchases. At the same time, the Fed is monitoring a historic spike 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 term, due to end in February 2022, has proved positive for riskier assets, with the S&P gaining 74.5% since his appointment on February 5, 2018 and helped by emergency measures. . The Fed launched in response to the coronavirus pandemic.

What will this mean for monetary policy?

Brainard, who was nominated to the Fed’s board by former President Obama in 2014, is widely seen in favor of a more liberal, or looser, monetary policy than Powell as, unless more progress is made, Because of his push to maintain super-easy monetary policy. job recovery. Here

Although more dovish policies may be preferable for riskier assets like stocks, investors have expressed caution at this point about turning horses in the race to recover from the pandemic. Some thought the change at the top ran the risk of misinterpretation of Fed policy and could increase volatility.

And what can change?

The change on top will also result in a range of issues from bank capital and proper credit to Wall Street regulation to climate-change risks and cryptocurrencies. Over the past four years, Brainard has resisted a number of de-regulatory changes led by Vice Chair for Supervision Randall Quarles and backed by Powell, and many on Wall Street expect him to be very hard on the industry if he gets the job. .

“Switching one pigeon to another will not necessarily change the approach to monetary policy, but will place a greater emphasis on aspects such as bank regulation and climate change,” wrote analysts at Société Générale.

Reporting by David Randall; Additional reporting by Michelle Price; Writing by Megan Davis; Editing by Andrea Ricci

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