Having previously looked shoo-in to spend another term as chair of the Federal Reserve, the bookies had been losing faith in Jay Powell and his ability to achieve re-nomination from President Biden. The President who is responsible for appointing the head of the monetary authority faced a challenging decision. Either continue with the incumbent President who has grappled with a pandemic, cut interest rates to record lows and now faces annualised short-term inflation rates in excess of 10%, or reset the record and appoint a fresh(er) face. In the face of controversy surrounding the private financial affairs of several Fed members during Powell’s term there was yet further speculation that a change in leadership could be in order.
The nomination and the President’s intentions had been kept closely under wraps. This invited speculation that potentially the President was considering appointing a replacement to incumbent Jay Powell. Pundits began speculating that Lael Brainard could take over the Chair from Jay Powell. Brainard is a familiar name at the Fed, she has served on the Board of Governors since 2014. As well as her background in International Relations, she is known to have a more dovish impact upon the dot plot and Fed’s thinking than many other members and the incumbent Chairman Jay Powell. Should Brainard have been confirmed as the new Chairwoman of the Fed it would have forced the relatively developed pricing of rate hikes out of the yield curve and in turn USD forward markets leading to a weakening of the US Dollar.
Brainard was not nominated by President Biden to Chair the Board of Governors but did receive the nomination for Vice Chair replacing incumbent Richard Clarida whose term expires in 2022. The appointments declared on Monday 22nd still have to be confirmed by majority vote in the Senate. It was the incumbent Jay Powell who received the nomination to spend a second term as Chairman. Despite the feverishly high level of inflation in the US at present and economic challenges therein, the consistency that Powell will bring and the hope of stability in markets likely finalised Biden’s decision. Markets reacted by pricing in a steeper yield curve at the front end in anticipation of the rate hikes that the Fed has alluded to. The reappointment was also welcomed by the equity market with a strong performance by US stocks in the aftermath of the decision.
Discussion and Analysis by Charles Porter