Biden had been weighing the choice of Jerome Powell or Lael Brainard as Fed Chair. His decision is finally out – he nominated the current Chair Powell on Monday to stay for a second term.
Difference between these two candidates?
Both offered similar views on inflation and interest rates this year. But the market expects an easier central bank under Brainard – taking longer to raise interest rates or tighten policy than under Powell.
P.S. a bit more background of both.
- Powell 🙋♂️has been the Fed chair since 2018. He helped to rescue the US stock market from the pandemic chaos by adopting low-interest rates and easy credit.
- Brainard 🙋♀️ has been a governor on the Fed board since 2014, and has support from some Democrats. She supports tougher regulations on US banks.
Why Powell? Policy continuity and stability of the Fed. (🐿️: Better not to change horses in the middle of a race?) Biden also elevated Brainard to vice-chair. Some said this is a “dream team”. Why not both? lol
How will this affect our investment?
His reappointment signals that easy monetary policy will continue, and the central bank will attempt to combat inflation. For assets this means:
Risk assets and crypto: High-risk assets like cryptocurrencies and unprofitable tech companies have seen their prices skyrocket in the past two years. Why? Low-interest rates + increasing consumer savings + stimulus checks.
- If Powell is slow to raise interest rates, then investors may keep enthusiastic about these risky bets.
Housing heat 🔥 Low-interest rates also encouraged more people to take out mortgages and buy houses. His reappointment might also help keep the housing realm hot.
US stocks reacted positively to the news 👍 but reversed course as a sell-off in tech shares dragged down stocks.