Scandal May Have Damaged Powell’s Chances For Renomination, Taper Seems Imminent
Scandal May Have Damaged Powell’s Chances For Renomination, Taper Seems Imminent
As the complexity of the ongoing legislative negotiations continue, the chances for Lael Brainerd ascending to Powell’s chairmanship is probably rising. We think the Biden Administration would prefer to keep Powell given the President’s nature, but the progressive wing of the party has had several setbacks legislatively and in the complex world that is Washington, he could end up in some ways being a victim of his own success.
In other words, the strength of the economy, which is in no small part due do the extraordinary efforts of Mr. Powell, may itself make him a more convenient sacrificial lamb. There is, however, always some political value to keeping him around if inflation gets out of control. He could prove a useful scapegoat in this event against an issue that has been the bane of incumbents.
Lael Brainerd would be the progressive choice given her stance on inequality and her considerable efforts to address climate change through the supervisory process, namely the Dodd-Frank Act stress testing requirements. So, in a way the very reason that Elizabeth Warren and other progressives are upset with Powell overseeing de-regulation is actually probably best rectified by Lael Brainerd from a policy perspective.
Betting markets have declined from recent highs but still give Powell well over two-thirds chance to be re-nominated. We’d agree and we think ultimately Powell gets reapproved, but he was definitely marred by the recent trading scandal in the public eye. We think markets would likely react unfavorably is Brainerd is nominated, though most Americans aren’t answering political polls about what Fed chairman they would prefer. The logic here is that Biden and the moderates here are quickly running out of suitable tributes to a marred progressive wing, and unfortunately Powell may be one.
About that influential trading scandal, yesterday the world’s most powerful Central Bank announced that Board Members, Bank Presidents and other senior staff will not be forbidden from trading individual stocks and will be subject to other curtailments of active trading. We’ll see whether that’s the last of it, but it may not be. Someone always might try to make more of a show out of it.
Chairman spoke at the South African Reserve Bank and said that he believed the Central Bank was “on track” to imminently taper. He said that in his opinion, markets understood where his thinking was and that tapering the asset purchases shouldn’t derail economic progress or a dislocated labor market.
Christopher Waller also spoke at an event at Stanford University on Tuesday with a more technical take saying that in his estimation markets had already priced in the taper. Asset purchases continued at a pace of $40 billion a month for MBS and $80 billion a month for Treasuries, although probably not for long. Tapering is expected to begin in November. The benchmark yield on the 10-year settled down a bit from last week at 1.638%.
Articles Read 1/2
🎁 Unlock 1 extra article by joining our Community!
Stay up to date with the latest articles. You’ll even get special recommendations weekly.
Already have an account? Sign In fae426-3d9260-3ef5c2-9b1495-27546a
Already have an account? Sign In fae426-3d9260-3ef5c2-9b1495-27546a
