Jerome Powell’s Reappointment as Fed Chief Bullish for Stocks

by Wall Street Rebel | James DiGeorgia | 11/22/2021 2:11 PM
Jerome Powell’s Reappointment as Fed Chief Bullish for Stocks

President Joe Biden’s renomination of Federal Reserve Chairman Jerome Powell for a second term and nomination for Lael Brainard as Vice Chairwoman should be welcome news for stock market bulls.

 

The announcement of the reappointment of Jerome Powell as the Federal Reserve Chairman and new Vice Chair has resulted in stock markets soaring, with the Dow Jones Industrial Average rising by more than 300 points at one point early in Monday’s session. 

Yahoo Finance Live featured an interview with Erin Browne, PIMCO managing director, and portfolio manager. The Wall Street player asserted about Biden’s choice…

“I think having a consistent hand in place is really what the market is looking for to guide us through potentially raising rates next year,” Browne added.

“I think that is right. This was largely expected by markets.”

Browne offered the opinion that the decision to renominate Powell for a second term was made to maintain consistency at the Federal Reserve.

Brown went on to assert that both Powell and Brainard share that the spike in inflation here in the United States is related to the Covid pandemic and the impact of the health crises on our country’s supply chains and that should wain in 2022.

There had been some suspense leading up to the decision. The choice shows Powell’s leadership through the COVID-19 induced economic crisis has earned the respect of the Biden administration. The Democratic, progressive caucus had been lobbying to replace Powell, appointed by President Trump with Fed Governor Lael Brainard, because of the preception she would be acclimated to considering climate-related risk issues.

Instead, Biden appears to have made everyone happy by listening to the progressive wing by nominating Brainard as vice-chair of the Board of Governors of the Federal Reserve System and putting her in line for the chair in four years. In the meantime, she will have as vice-chair extensive influence on Federal Reserve Policy. The White House, in a statement announcing his decision, said…

“America needs steady, independent, and effective leadership at the Federal Reserve so it can advance its dual goals of keeping inflation low and prices stable, as well as creating a strong labor market that broadly benefits workers with better jobs and higher wages.”

“President Biden has full confidence in Powell and Brainard’s experience, judgment, and integrity to continue delivering on those mandates and to help build our economy back better for working families.”

Meanwhile, Treasury Secretary Janet Yellen was very complimentary of Jerome Powell after being officially informed of Powell’s renomination; she was quoted as saying his renomination will allow the economy to…

          “Continue to benefit from his stewardship.”

Meanwhile, Senators on both sides of the political aisle applauded Biden’s decision. Senate Banking Committee Chairman Sherrod Brown (D-Ohio) said he “look[s] forward to working” with Powell in a second term. While the Senate committee’s ranking Republican, Pat Toomey of Pennsylvania, said he would support Powell’s confirmation.

Jerome Powell and Lael Brainard will have to appear before the Senate Banking Committee for confirmation before awaiting approval from the entire 100-member Senate.

The Choice of Powell will not please every Democratic Senator. Sen. Elizabeth Warren (D-MA) had said she would not support a Powell renomination, citing bank regulatory rollbacks implemented under his chairmanship.

On the other hand, Yahoo finance featured and interviewed State Street Global chief investment strategist Michael Arone who says Powell’s renomination should be bullish for stocks…

“It means the Fed will remain dovish for a while longer. So putting Brainard in that vice-chair seat certainly leads to this idea that interest rates and monetary policy will remain lower for longer, and that is good news for long-duration growth assets like technology,” Arone explained.

For his part, Powell, a Republican, has had a record of securing bipartisan support through several administrations. Powell was confirmed to the Fed Board as governor during the Obama administration, securing a 74 to 21 vote in 2012. When Trump tapped Powell to replace Janet Yellen as the head of the Fed, Powell easily won confirmation in an 84 to 13 vote demonstrating tremendous bipartisan support.

Powell will likely be confirmed by a sizeable bipartisan vote in the Senate but is likely to be confronted by progressives like Senator Warren during his confirmation hearing.

The rising inflation numbers and the continuing impact of the Covid-19 pandemic on the United States is an unprecedented test for the central bank. A minority of Wall Street’s analysts and pundits are concerned the recent high inflationary prints through the economic reopening could lead to runaway inflation.

Americans are taking growing noticing rising prices at the store, and the gas pump raises questions about whether the central bank’s policies of near-zero interest rates and bond-buying are to blame.

Chairman Powell insists that the price pressures are due to factors like limited semiconductor production and choked up shipping routes, which policymakers blame on COVID-induced restrictions at global production sites and ports. Powell said at a press conference on November 3…

“We understand the difficulties that high inflation poses for individuals and families, particularly those with limited means to absorb higher prices for essentials such as food and transportation. Our tools cannot ease supply constraints.”

One wild card in the renomination of Powell is the chance that he could face a fire of questions and criticisms for an ethics scandal that engulfed at least two senior Federal Reserve officials, Eric Rosengren and Robert Kaplan. By 2020, the two heads of regional Fed outposts in Boston and Dallas made a number of personal financial transactions while voting on policy actions that moved markets.

Both of those Fed presidents resigned from their roles, and Powell moved quickly to tighten the Fed’s ethics rules to ban all active trading, effectively only allowing holdings of diversified investment vehicles. Powell has committed himself to repair any reputational damage made to the central bank. Powell said on November 3...

 “We are where we are. It happened, and we just have to deal with it forthrightly and transparently and own it and step up to meet this moment; I’m totally committed to doing that.”

It’s believed that the Senate will have to move relatively quickly to confirm Powell since his term as Fed chair expires in February. There are three other vacancies on the Fed Board that the White House could fill, including a vice chair for supervision. These seats will likely be made up of nominees who will be progressive to offset Powell’s renomination.

 

                     Stocks higher after Biden renominates Powell for Fed chair

 

 

 

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