Fund managers responded positive to Donald Trump’s nomination of Jerome Powell as chair of the Federal Reserve.
Trump announced the nomination of Powell, who has been a serving Fed governor since 2012, on Thursday. Subject to Senate approval, Powell could take on the role as new chair of the Fed per 3 February 2018.
According to Anna Stupnytska, global economist at Fidelity International, Jerome Powell’s appointment as Fed chair represents policy continuity in the near-term and might even result in a slightly easier monetary stance than some other contenders for the role.
“Unlike recent Fed chairs such as Ben Bernanke and Janet Yellen, he has not advanced any theory or suggestion that could be relevant to monetary policy thinking, whether in his public speeches or otherwise. He has tended to stick to the Fed’s consensual ‘party line’. This suggests – even more so than in recent years – that the Fed will be consensus-driven, rather than reflecting the views of Powell or his closest associates” Stupnytska argues.
In addition to his dovish stance on monetary policy, described by Trump as a “low-interest-guy” Powell is also an advocate of reducing the level of existing banking regulation, the Dodd-Frank rules in particular.
Jeremy Lawson, chief economist at Standard Life Investments also predicts that: we doubt that a Powell-led Fed would withdraw policy support much faster than the current pace and also think that he would reignite QE should the circumstances require it.
However, Ashok Bhatia, senior portfolio manager at Neuberger Berman stresses that despite his appointment: “Futures markets overwhelmingly expect the Fed to raise the federal funds rate by 25bp following its 13 December policy meeting. The central bank’s latest ‘dot-plot’ of interest rate projections implies three additional 25bp hikes in 2018, bringing its policy rate up above 2% by year-end. In October, the Fed began to trim the size of its bond portfolio, by allowing $6bn of treasuries and $4bn of mortgage-backed securities to mature every month without reinvestment.”
Bhatia warns that: “While policy continuity is welcomed, we could see market volatility re-emerge as central bank normalisation evolves. Not only has the Fed recently embarked on balance-sheet reduction, but the European Central Bank announced plans to reduce the size of its monthly asset purchases and also extend the duration of its QE program, while the Bank of England raised its benchmark rate for the first time in a decade yesterday.”