Powell was nominated for re-election by Biden, and the Fed’s risk of turning Eagles quietly increased

On Monday (November 23), US President Biden nominated Fed Chairman Powell for re-election for a four-year term. The former investment banker will continue to carry out the most important monetary policy reforms since the 1970s and complete the lead of the economy out of the epidemic crisis. Task. The White House said that Fed Governor Lael Brainard will serve as vice chair, and she is also another popular candidate for the chair.

The decision announced by the White House on Monday is both a commendation for Powell’s assistance in saving the US economy from the epidemic, and it also entrusts him with the important task of protecting the recovery from the impact of soaring consumer prices. As a Republican, Powell is expected to be successfully confirmed in the Senate. At the beginning, his first four-year term was supported by 84 votes to 13 votes. Later, he also worked hard to win the support of parliamentarians.

Brainard will succeed the current vice chairman Clarida, but because of her tough stance on bank supervision, her nomination may be opposed by the Senate Republicans. Biden had interviewed her for the post of chairman of the Federal Reserve, and she was also seen as a strong competitor for the post of vice chairman responsible for supervision. The vacancy is still to be filled.

Biden nominates Powell for re-election as Fed chairman, taking the lead in the sensitive period of recovery

The two nominated this time are not only monetary policy veterans, but also partners in recent Fed policy reforms. This reform shifts the policy focus from the high focus on inflation established about 40 years ago to employment, in order to maintain employment growth in the United States, while ensuring that recent high inflation will not be deeply entrenched.

In a speech with the nominees at the White House, Biden said: "Powell's stable leadership has calmed the panic market, and he believes that monetary policy can support full employment. I believe Powell is the right person to help us tide over the difficulties." He said that the United States is still responding to the effects of the epidemic, including inflation, but that the United States has made "great progress", including the creation of nearly 6 million jobs since he was sworn in, and wages have risen-these positive signs are right. Evidence of the actions taken by the Federal Reserve.

Biden said: "I respect Powell's independence. At this time when our economy is showing great potential and facing great uncertainty, we need the Fed to maintain stability and independence." This directly responded to the criticism of his fellow Democrats. , The latter hoped that he would replace Powell, a Republican, with a Democrat.

Both Powell, 68, and Brainard, 59, need to be confirmed by the Senate before they can serve as Fed leaders. The Senate is currently controlled by the Democratic Party led by Biden, but the advantage is weak. There are still several Fed job vacancies awaiting the president’s nomination for succession, including the vice chairman responsible for supervision. He may fill these vacancies as soon as next month. He may use these nominations to strengthen bank supervision, increase diversification, and achieve His supporters urged the Fed to make other changes. But Biden chose continuity for the Fed's core monetary policy.

Adam Posen, director of the Peterson Institute for International Economics, said: "These two are veterans and mature civil servants. They have no differences on monetary policy. Powell is a moderate promoted by former President Trump. A Republican, Brainard has served in previous Democratic administrations. The combination of the two makes a more realistic assessment of the inflation risks facing the United States and may have the credibility of non-partisanship. "

Biden: Nominating Powell for re-election helps the Fed maintain stability and independence

Powell's re-nomination was supported by investors and economists from different fields, both conservative and liberal.

The Fed's aggressive actions at the beginning of the new crown epidemic in early 2020 have been hailed as avoiding a potential Great Depression. Subsequently, some people praised Powell’s focus on employment in the new policy framework introduced more than a year ago, while others believed that in the sensitive period of the gradual withdrawal of emergency measures taken during this health crisis, the risk of changing to the battlefield would be too risky. Big. The recent round of inflation has exacerbated uncertainty and increased the political risk that the White House may take when changing its strategy.

Powell’s second term will begin in early February, and the next few months will be the key to determining how future generations will judge his next term, that is, whether he will promote employment to the center of Fed policy or allow inflation to soar and bring it back to life. Become a long-term problem.

Biden said Powell is the right person to lead the Fed. He said: "The Fed's mission is to balance two key goals. The first is to achieve full employment, and the second is to maintain low inflation and price stability. To achieve these goals requires patience, skill and independence."

Biden said that the reason why Powell was not replaced by a more liberal candidate was "the need to maintain the stability and independence of the Federal Reserve." He added that politicizing the nomination will be avoided. Biden said: "Powell has proved the independence of the Fed chairman that I expected with facts. In the previous administration, he withstood unprecedented political interference.

In a speech at the White House, Biden said, “The record-breaking new jobs, record-breaking economic growth, and record-breaking number of new small businesses give us full confidence in the economy under construction.” During the dialogue, Powell assured him that he will not only focus on tackling inflation, but also on climate change issues.

Also attending the press conference was Brainard, who was nominated as the vice chairman. The Fed’s vice chairman has traditionally been the Fed’s No. 2 person, playing a key role in supporting the chairman and sending policy signals. Brainard and Powell have similar views on monetary policy, but there are differences in banking supervision. She is opposed to Powell's mild withdrawal of some tough banking supervision measures after the financial crisis almost every step.

At present, the central bank has begun to withdraw from the ultra-loose monetary policy under the challenge of continued inflation. Biden's choice of Powell has ensured the continuity of the policy, and therefore may also win the approval of investors.

Powell was nominated for re-election, Biden chose policy coherence

The White House stated that Biden plans to begin announcing nominations for the position of supervisory vice chairman and other vacancies on the board of directors in early December. Ohio Democrat, Sherrod Brown, chairman of the Senate Banking Committee, and Patrick Toomey, the highest-ranking Republican on the committee, have all expressed their support for Powell's nomination.

The 68-year-old Powell has received cross-party support including Treasury Secretary Yellen and other Democrats, but progressive Democrats such as Massachusetts Senator Warren lobbied Biden to choose to be closer to their position on the issue of overseeing banks and tackling climate change. People. After the transactions of some senior Fed officials were exposed, Powell had to take responsibility for the moral scandal.

Kathy Jones, chief fixed-income strategist at Charles Schwab, said after the announcement: “ Since Powell has been nominated again, it is clear that the market is considering the possibility of the Federal Reserve speeding down the code and raising the first interest rate earlier. ” The pricing of the interest rate futures market shows that investment The author expects the Fed to start raising interest rates in June next year.

Economist Anna Wong said: "Powell's re-nomination means policy coherence, because he will lead the Fed and the market through policy normalization in the next four years. Now inflation is unexpectedly hot, and there are signs of labor. The market’s recovery is accelerating. We believe that the probability of the Fed’s announcement of an accelerated reduction in the December meeting is increasing , although this is not our main forecast."

Powell’s second term will be completely different from the first term. Although the economy is rebounding, inflation is at its highest level in three decades, the number of new crown cases is still high, and the tight supply chain has also brought huge uncertainty. Some officials have hinted that the Fed may need to withdraw its large-scale asset purchase program faster than it currently plans. Some members of the Federal Open Market Committee may wish to raise interest rates earlier than Powell. Powell said this month that he would not consider raising interest rates until the labor market showed signs of improvement.

Powell and Brainard emphasized that curbing inflation is their top priority

After U.S. President Biden nominated Powell for re-election as the chairman of the Federal Reserve and nominated Fed Governor Brainard as the vice chairman, Powell promised to "use our tools" to help employment and combat rapidly rising consumer prices.

After Biden announced his nomination, Powell said in a brief speech at the White House on Monday: “We know that high inflation will cause harm to families, especially those families that are less able to respond to rising prices of basic daily necessities such as food, housing, and transportation. We will use our tools to support the economy and a strong labor market, and prevent rising inflation from becoming more stable. "

Brainard said in his speech after Powell: "I am committed to making American working people the focus of my work at the Fed. This means paying attention to people’s work and how long they can maintain their salaries while reducing the inflation rate. Depress."

A reassessment of inflation risks may mean that if inflation turns out to be more durable than expected, then interest rates may rise earlier than expected. Both nominees mentioned the dangers posed by inflation.

Powell has no worries, the Fed is more likely to show a hawkish stance

As the dust settles on the Fed chairman’s nomination, the Fed may become slightly more hawkish, adding fuel to the bets on the short-term interest rate market. There has been a significant repricing in the market, largely related to the fact that Brainard, the unselected candidate, is considered to be less inclined to tighten monetary policy than the current Powell. In addition, Powell, who has no re-election concerns, may act more freely and implement the less expansive policies necessary in the eyes of observers.

Mark Cabana, director of US interest rate strategy at Bank of America, believes that Powell's door to a more hawkish stance may be open. He said: “Today’s statement should allow the Fed to make adjustments and recognize the upside risks brought by inflation, and they can start talking about how they will respond.” In many ways, the Fed’s leadership is in the face of the uncertainty of the nomination decision. There is a certain degree of restriction in making this transition. He suggested shorting long-term Treasury bonds tactically, and said that medium-term Treasury bonds may "suffer the greatest revaluation."

The continuity provided by Powell may also be a consideration in the FOMC’s choice of path. If Brainard is nominated, it will take some time to formally take the chairmanship, which may delay any potential policy changes. ?

Stifel Nicolaus & Co. strategist Chris Aherns said: " Nominating Brainard will take a lot of time, and Powell's re-election will give the FOMC more time to move towards a tightening position. " Some decision makers are already making this voice. . Vice Chairman Clarida, Board Member Waller, and St. Louis Fed President Bernard all hinted last week that at the FOMC's December policy meeting, the topic of speeding up code reduction might be on the table for discussion.

The market has already advanced the time for the Fed to raise interest rates by 25 basis points for the first time to June 2022, and further turning to hawks may expand this trend. The announcement of the minutes of the FOMC meeting this week may also bring additional fuse. After the announcement, the US stock market hit a record high. U.S. Treasury yields have also risen, the dollar has strengthened, and spot gold has plunged by nearly $40 to near the 1,800 mark.

GMT+8 08:37, spot gold is now quoted at US$1809.32 per ounce.