US president Joe Biden has nominated Jerome Powell for a second term in charge of the Federal Reserve, ending weeks of speculation about the future direction of the world’s most important central bank. Left-wing democrats had pushed for Lael Brainard, a member of the Fed’s board of governors who has taken a tough stance on financial regulation, to succeed Powell, a Republican, in the post. Biden has instead nominated Brainard to be vice chair, keeping Powell in place for another four years. Powell will face confirmation hearings in the Senate before his new term begins in February 2022.
Biden has made the right call, says Bloomberg. The Fed needs continuity as it conducts the delicate task of unwinding crisis-era monetary policy. A new boss would have raised the risk of miscommunication and market upsets. While Brainard takes a stronger line on financial regulation, the pair don’t seem to have any major disagreements about monetary policy. The risk was rather that Brainard, a Democrat, would have been perceived as “partisan”. The last thing the Fed needs is to get sucked into febrile party-political spats.
Powell’s second term could prove a “poisoned chalice”, says Desmond Lachman for The Hill. Last year he threw the kitchen sink at financial markets to stave off disaster from the pandemic. That has helped send US inflation up to 6.2%, the highest in three decades. US stocks are at valuations “experienced only once before in the past 100 years”. That will put Powell in a bind next year: either he lets price rises rip – and goes down as the Fed chair who presided over the return of inflation – or he raises interest rates earlier than expected, bursting the asset-price bubble.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Fool me twice?
Meanwhile in the UK, Bank of England governor Andrew Bailey is “beginning to look beleaguered”, says Martin Vander Weyer in The Spectator. He appeared to suggest interest rates would rise earlier this month, only to surprise traders when they didn’t. The incident caused unnecessary market turmoil. “There’s nothing wrong with ambiguity so long as markets are convinced the central bank is ahead of the game. But in this case the governor just looked lame… and the Bank’s authority… correspondingly diminished”.
After betting wrongly on an interest rate hike in November, markets are pricing in a hike at the Bank’s next meeting on 16 December. One of the reasons the Bank held interest rates at 0.1% was because it was waiting to see what impact the end of the furlough scheme would have on employment. Strong employment data since then has allayed those concerns, while news that annual UK inflation hit 4.2% in October has raised the odds of a hike. It remains to be seen whether the Monetary Policy Committee will disappoint markets a second time.
-
Reeves urged to axe stamp duty from UK shares held in an ISAChancellor Rachel Reeves is reportedly considering axing stamp duty from UK shares held in stocks and shares ISAs. What could it mean for your portfolio?
-
Family investment companies explained: how the ultra wealthy shield their money from the taxmanWealthy families are increasingly turning to family investment companies to keep more of their money away from HMRC – but what are these arrangements and how do they work?
-
Yoshiaki Murakami: Japan’s original corporate raiderThe originator of Japanese activism, Yoshiaki Murakami, was disgraced by an insider-trading scandal in 2006. Now, he's back, shaking things up
-
Galliford Try has firm foundations for strong growthBuilder Galliford Try has a finger in a wide range of pies, notably important work in the public sector
-
Card Factory is a stand-out small-cap going cheapIn a digital world, we still value the personal touch. That’s good news for Card Factory, whose unique business model is suited to weather all economic storms
-
How much gold does China have – and how to cash inChina's gold reserves are vastly understated, says Dominic Frisby. So hold gold, overbought or not
-
Debasing Wall Street's new debasement trade ideaThe debasement trade is a catchy and plausible idea, but there’s no sign that markets are alarmed, says Cris Sholto Heaton
-
Europe’s new single stock market is no panaceaOpinion It is hard to see how a single European stock exchange will fix anything. Friedrich Merz is trying his hand at a failed strategy, says Matthew Lynn
-
Should UK schools ban smartphones?The effects of smartphones on young minds are disturbing, with calls for politicians to make school smartphone bans mandatory. Is radical action needed?
-
Are venture-capital trusts worth investing in?Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
