By David Randall, Lewis Krauskopf and Shreyashi Sanyal
NEW YORK (Reuters) – Biden’s pick of Jerome Powell to continue as Federal Reserve Chair gives global investors stability and some predictability as the central bank prepares to taper its asset purchases and start hiking rates.
Many investors had hoped that Powell, who was nominated as chair by President Donald Trump in 2017, would be renominated by President Joe Biden for another four-year stint. 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 chair. Biden also has three Fed seats to fill, including the Vice Chair for Supervision, and intends to make those in early December.
Powell’s current term, which is due to run out in February 2022, has proven positive for risk assets, with the S&P gaining 69.7% 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.
“My reaction is one of relief,” said Peter Tuz, President, Chase Investment Counsel, Charlottesville, Virginia. “He was a steady hand, I think people liked in general the policies that he enacted since (COVID-19) first became an issue.”
While Tuz said that Powell was “liked by both parties, he has been a pretty stable force.”
U.S. government bond yields, which move inversely to prices, rose on the news, with those on two and five-year Treasuries hitting their highest levels since early 2020. The dollar extended gains against a basket of currencies and the S&P 500 opened about 0.4% higher. [.N]
Powell had always been the favorite, but he was seen as less of a slam-dunk after his odds in betting markets fell following sharp criticism of his performance by progressive Democrats and a trading scandal among Federal Reserve officials. [L1N2R020J]
Online betting website PredictIt gave Powell a 79% chance of being confirmed by the U.S. Senate as of Monday morning, down from a 90% chance on September 12, while the odds that Federal Reserve Governor Lael Brainard would be nominated had increased to 23% from a low of 6% in September.
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 Federal Reserve starts tapering its $120 million in monthly bond purchases. At the same time, the Fed is confronting an historic surge of inflation as global supply chains remain disrupted by the coronavirus pandemic.
“The markets are going to take this as a sign of relief,” said Robert Pavlik, Senior Portfolio Manager at Dakota Wealth Management.
Pavlik said that Brainard taking the vice chair role “at least puts some kind of pressure on Powell to not to move too quickly with raising rates.”
Brainard, who was nominated to the Fed board by former President Barack Obama in 2014, is widely seen as more dovish than Powell in part because of her push to retain super-easy monetary policy until there is more progress on job recovery.
Investors had grown nervous about Powell’s reappointment, with some saying they’d expected it earlier in the calendar – as has been the case with prior chair announcements.
Powell was nominated chair by former President Donald Trump on Nov. 2 2017, U.S. Treasury Secretary Janet Yellen 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.
Following the nomination, Powell will need to be vetted by the Senate Banking Committee before going to a vote in the full Senate, where a simple majority would be needed.
Powell 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.
The Fed Chair nomination comes as Democrats try to push through a landmark social spending bill that is central to the administration’s economic agenda.
Warren has also called the U.S. Securities and Exchange Commission to investigate trading by top U.S. central bankers, including that of two Fed bank presidents who resigned after public outcry over their transactions.
(Reporting David Randall; additional reporting by Stephen Culp and Shreyashi Sanyal; writing by Megan Davies; editing by Nick Zieminski)