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Markets up as Joe Biden sticks with Jerome Powell to lead the way at Federal Reserve

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Jerome Powell, governor of the US Federal Reserve. Photo: Michael Nagle/Bloomberg

Jerome Powell, governor of the US Federal Reserve. Photo: Michael Nagle/Bloomberg

Jerome Powell, chairman of the U.S. Federal Reserve, arrives for a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, July 15, 2021. Powell said yesterday the U.S. economic recovery still hasn't progressed enough to begin scaling back the central bank's massive monthly asset purchases. Photographer: Al Drago/Bloomberg

Jerome Powell, chairman of the U.S. Federal Reserve, arrives for a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, July 15, 2021. Powell said yesterday the U.S. economic recovery still hasn't progressed enough to begin scaling back the central bank's massive monthly asset purchases. Photographer: Al Drago/Bloomberg

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington, D.C., U.S., on Thursday, Sept 24, 2020. Powell yesterday faced questions from U.S. lawmakers over the central bank's help for Americans compared with markets during the coronavirus pandemic. Photographer: Toni L. Sandys/The Washington Post/Bloomberg

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington, D.C., U.S., on Thursday, Sept 24, 2020. Powell yesterday faced questions from U.S. lawmakers over the central bank's help for Americans compared with markets during the coronavirus pandemic. Photographer: Toni L. Sandys/The Washington Post/Bloomberg

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Jerome Powell, governor of the US Federal Reserve. Photo: Michael Nagle/Bloomberg

Traders, strategists and money managers were virtually unanimous in welcoming four more years for Jerome Powell, selected yesterday for another term as chair of the Federal Reserve.

Investors will likely breathe a sigh of relief this morning with Biden’s vote of confidence in Powell,” said Mike Bailey, director of research at FBB Capital Partners. “With stocks at all-time highs, investors want as little change as possible, and the second Powell term delivers just that.”

President Joe Biden selected Mr Powell for a second four-year term while elevating Governor Lael Brainard to vice-chair, keeping consistency at the US central bank as the nation grapples with the fastest inflation in decades and the lingering effects of Covid-19.

The move, rewards Mr Powell for helping rescue the US economy from the pandemic and tasks him with protecting that recovery from a surge in consumer prices.

When the coronavirus crisis hit in 2020, Mr Powell steered the economy through the pandemic, cutting interest rates to near zero in one month and choosing a forceful course of action he was later praised for.

This year, Mr Powell is facing a difficult task of weaning the economy off of stimulus and making sure prices do not jump too fast.

And while Wall Street did not always like Mr Powell’s actions – stocks nosedived after he called interest rates “a long way from neutral” in the autumn of 2018 – it kept its frustration brief. Since Mr Powell took office in 2018, the S&P 500 has rallied 70pc in the best performance for any Fed chief since Alan Greenspan.

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Yields on two- and five-year Treasuries, the most sensitive tenors to the path of expected Fed policy, jumped after the announcement. A full 25-basis point interest rate hike is priced in for the June 2022 meeting, according to the US swaps market.

David Donabedian, chief investment officer of CIBC Private Wealth Management, said:
“It represents continuity in terms of leadership at the Fed and that means more of a feeling of certainty. And I think that President Biden has a number of political challenges now and he doesn’t need volatility at financial markets to add to that.”


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