Wall Street breathes sigh of relief as Powell gets second Fed term

Wall Street will head into the Thanksgiving holiday with one less worry after President Joe Biden decided to nominate Jerome Powell for a second four-year term as Federal Reserve chair.

Biden also elevated Governor Lael Brainard to vice chair. Taken together, the moves are likely to ensure consistency at the central bank as the U.S. economy grapples with continued fallout from the pandemic and rising inflation.

“This is sort of the dream team,” Peter Orszag, Lazard Ltd.’s head of financial advisory, said Monday in an interview on Bloomberg Television. “Together you’re going to see an even better alliance and combination.”Play Video

Wall Street had been anxiously awaiting Biden’s picks. The Fed’s monetary policy has encouraged investors to take on more risk and pushed stock, housing and other asset prices higher. The result is what Fed staffers have called “notable” vulnerabilities in the financial system.

“Of course everybody was relieved,” billionaire hedge fund executive Marc Lasry said. “The markets believe that he will do what is necessary to keep the markets calm and have them move forward.”

Bank stocks advanced, with the KBW Bank Index gaining 2.7% at 1:57 p.m. in New York.

Mike Mayo, an analyst at Wells Fargo & Co., said the announcements bolstered expectations that interest rates will climb next year, and that should help bank shares because lenders are more sensitive to higher short-term rates. But he said an even more important theme for the industry is the technology revolution.

“When it comes to banks, interest rates are the battle, but tech is the war,” Mayo said in a note.

Biden left the separate job of vice chair for supervision vacant, a key role that’s meant to police banks and Wall Street companies. The president plans to announce that nomination along with additional picks for open seats on the Board of Governors beginning in early December, according to the White House.

Short-term Treasury yields climbed after the news. The Bloomberg dollar index gained as much as 0.4% to the highest level since September 2020 and the S&P 500 Index rose to a record.

“Although this decision likely wasn’t an easy one for the President, this should be greeted positively from markets,” Ryan Detrick, chief market strategist for LPL Financial, said in an emailed statement. “We know what we will get from Mr. Powell and this is one less worry now.”

[Read more: On inflation, advisers hope for the best, prepare for the worst]

Treasury Secretary Janet Yellen said Powell’s Fed already helped ensure the economy was able to recover from the health and economic crisis. “I’m pleased our economy will continue to benefit from his stewardship, and the expertise and experience of Lael Brainard,” Yellen said on Twitter.

Under Powell, the Fed ushered in massive amounts of stimulus, which helped the country’s biggest banks avoid billions in losses as unemployment soared during the early days of the pandemic. 

“We expect regulators will continue to hold the largest banks to the high regulatory and supervisory standards that have remained in place to support a resilient and essential part of the U.S. financial system,” said Kevin Fromer, chief executive officer of the Financial Services Forum, which counts the CEOs of the country’s eight largest banks as members.