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Dollar Climbs as Biden Renominates Powell

by Karl Schamotta | November 22, 2021

The White House has announced that President Joe Biden will nominate Jerome Powell to head the Federal Reserve for a second term, keeping an experienced hand on the helm as the central bank struggles to manage rising prices and a still-nascent economic recovery.

Lael Brainard, widely considered a more dovish competitor for the top job, will succeed Richard Clarida as vice chair of the central bank’s board of governors.

Mr. Biden said, “While there’s still more to be done, we’ve made remarkable progress over the last ten months in getting Americans back to work and getting our economy moving again. That success is a testament to the economic agenda I’ve pursued and to the decisive action that the Federal Reserve has taken under Chair Powell and Dr. Brainard to help steer us through the worst downturn in modern American history and put us on the path to recovery”. He added: “I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy stronger than ever before”.

The decision comes after months of speculation, and amid increasingly-strident criticism from across the political spectrum. Respected academics and policymakers have challenged the central bank’s stance on inflation in recent weeks, with many calling for a change in leadership. Some had expected the administration to take a different tack, pinning blame for rising prices on Powell, and nominating someone else to helm the central bank.

Powell’s nomination is nonetheless likely to meet with swift approval in the Senate – he was appointed by Donald Trump and has maintained cross-aisle support throughout his first term – but Brainard could face a more difficult path. She has remained steadfastly dovish as inflation rates have climbed, is generally more focused on labour market outcomes than her counterparts, and has expressed more draconian views on bank regulation – something that many Republicans oppose.

Treasury yields climbed and the dollar popped 0.2 percent higher after the announcement, but the decision is unlikely to signal any major changes in monetary policy. In the counter-factual, Brainard might have taken a slightly less aggressive approach to raising rates, but the Fed is ultimately a consensus-driven institution – if the bulk of the committee favour raising rates, rates will go up. We expect this morning’s reaction to fade over coming market cycles as traders take a longer-term perspective.

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