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.
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.”