Powell still favorite for Fed reinstatement but investors examine
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[October 15, 2021] By
NEW YORK (Reuters) -Jerome Powell may still
be the clear favorite to get renominated as Federal Reserve Chairman,
but some investors are considering the long-shot alternative should
there be a surprise change.
Powell's odds in betting markets have fallen following sharp criticism
of his performance by progressive Democrats and a trading scandal among
Federal Reserve officials. [L1N2R020J]
Online betting website PredictIt now gives
Powell a 76% chance of being confirmed by the U.S. Senate, down from a
90% chance on September 12 although up from a 61% chance in late
September, while the odds that Federal Reserve Governor Lael Brainard
will be nominated have increased to 18% from a low of 6% in September.
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.
Should Brainard be chosen as the next Fed chair, the Fed could extend
its dovish policies and push back the central bank's timeline for
raising interest rates beyond 2022, but that could result in a series of
rapid rate increases down the line if high inflation persists and the
Fed is behind the curve, investors and analysts said.
"You could see a different path of monetary policy with a Brainard-led
Fed" that pushes back initial interest rate hikes and follows with a
shorter tightening cycle, said Paul Herbert, Managing Director at Harbor
Capital Advisors, who expects Powell to be renominated but is preparing
to hold shorter duration bonds for longer in the case of a Brainard-led
The White House has not chosen any fixed timetable for President Joe
Biden to make a decision on Fed personnel but has said Biden "will
engage with his senior economic team in a careful and thoughtful
process...in a timely manner." Biden has not made a decision but some of
his aides are supportive of Powell, according to people familiar with
Whoever Biden nominates will first be vetted by the Senate Banking
Committee before going to a vote in the full Senate, where a simple
majority would be needed.
Powell, a Republican, 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.
[to top of second column]
Federal Reserve Chair Jerome Powell attends the House Financial
Services Committee hearing on Capitol Hill in Washington, U.S.,
September 30, 2021. Al Drago/Pool via REUTERS/File Photo
Nicholas Colas, co-founder of DataTrek Research, wrote in a research note that
if "history is any guide, we should know the outcome in the next few weeks,"
noting that prior announcements have come in October and November.
Powell was nominated by former President Donald Trump on Nov. 2 2017, U.S.
Treasury Secretary Janet Yellen was nominated by 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.
"We continue to stare in admittedly morbid fascination at the PredictIt odds for
the next Federal Reserve Chair," wrote Colas, adding that "we think Powell will
keep his job. It makes little sense to switch the proverbial horses midstream."
While the Federal Reserve likely will have begun tapering its emergency-level
support of the bond market by that time, a change would also increase the risk
that markets misinterpret the Fed's policy outlook in the year ahead, said Jason
England, global bonds portfolio manager at Janus Henderson.
"You would see volatility in markets because there would be less certainty
around monetary policy," he said.
Biden's decision in naming a Fed Chair nominee comes as progressive and moderate
Democrats are squaring off over a landmark reconciliation bill and
infrastructure bill that are at the heart of the administration's economic
Warren has 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.
"The stock ownership investment scandal situation involving the Fed, thatís
probably whatís influencing that the odds the most," said Scott Kimball, co-head
of U.S. fixed income at BMO Global Asset Management. "The bottom line is heís
done a very good job," he said.
The accommodative tilt of the Fed will not likely change considerably whether
Biden nominates Powell or Brainard, said Mike Gladchun, director of U.S. rates
trading at Loomis Sayles.
"It needs to be appreciated just how dovish the path that Powell has the current
Fed on," he said.
(Reporting by David Randall; additional reporting by Trevor Hunnicutt; editing
by Megan Davies and Diane Craft)
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