15.09.202115:47 Forex Analysis & Reviews: What awaits the Fed if Jerome Powell leaves?

Exchange Rates 15.09.2021 analysis

Recently, there has been a lot of talk about the Fed and its monetary policy. By and large, all of them are now reduced to those changes that can be taken already at the meeting in September. However, there are also longer-term prospects. For example, in January 2022, Jerome Powell's term of office will end. Nothing prevents Powell from remaining in his post as head of the Fed. If Joe Biden nominates him for this post, and the US Congress supports it. However, it is already known that Joe Biden wants a person with more "dovish" views to be at the helm of the country's central bank. Perhaps the expression "your person" is even applicable here.

Recall that Jerome Powell became the chairman of the Federal Reserve under the patronage of former US President Donald Trump. However, a year after their joint work, they began to conflict. Trump insisted that Powell lower the key rate, citing that US competitors have a softer monetary policy, which makes it much easier for them to confront the US. Powell did not give in to Trump's requests in any way (in the States, even the president of the country does not have the right to give orders to the Fed; the Fed is an independent body). From here, a series of endless conflicts began, and Donald Trump repeatedly called Powell "on the carpet." Thus, it is not necessary that if a "Biden man" comes, it will mean that he will fulfill Biden's will.

Nevertheless, Powell is likely to leave his post. The ruling Democrats believe that the head of the Federal Reserve should pay more attention to climate problems. In other words, they think that enterprises using "green energy" should be encouraged (cheap loans) and vice versa. Some senators and members of Congress also have complaints about the internal ethics of the Fed. Recently, it turned out that some heads of the Federal Reserve Bank trade stocks, and they do it quite actively. In particular, we are talking about Robert Kaplan and Eric Rosengren.

Nevertheless, this issue is quite complex, so we can not say that Powell is leaving. Now the candidacy of Lael Brainard is actively being called for the post of head of the Federal Reserve. Experts believe that if Brainard becomes the head of the Fed, the key rate increase will occur much later than under Powell. Experts also believe that Brainard's policy will be more "dovish." Thus, in January of this year, serious changes may occur in the Fed, which will affect monetary policy and the dollar exchange rate. In principle, it is easy to guess that the "softer" the policy is, the greater the probability of a fall in the US currency and the greater the probability of further growth of US stock indices.

*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.

Paolo Greco,
Esperto analitico di InstaForex
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