Who Will Replace Jerome Powell as Fed Chairman?

The conventional wisdom is that the longer the President waits to confirm the Chairman of the Federal Reserve, the more likely it is that there will be a replacement.

Generally, the idea is to reassure markets about continuity, to minimize uncertainty. If the President has decided to keep the Chairman, typically it’s announced as soon as possible. However, if the President wants someone new, finding a replacement typically delays the announcement.

In order to get an idea of potential timing, we can look at the history of the process. Trump was highly critical of the Fed during the campaign. In fact, he announced that he would replace then Chairman Yellen (now Secretary of the Treasury) on November 4.

The position’s term lasts until February. But the idea is to nominate someone as early as possible to ensure a smooth transition. Congress goes into recess in December, meaning that any appointment would have to come soon.

What can we expect?

By comparison, Obama opted to keep Ben Bernanke in his post, making the announcement in late August. It’s also important to note that Obama came into office in the middle of an economic crisis.

That said, the pattern repeats itself going further back. Usually, confirmation statements happen in the middle of summer, and changes are announced typically in early November.

Of course, Biden might be the exception to the trend. Nevertheless, given the political landscape and practicalities, we’ll likely know in the next two weeks whether or not Powell gets to keep his job.

Both the Fed and the White House have been tight-lipped about whether a change is coming, or who would be nominated. By this time during the Trump administration, several candidates had been named and even interviewed by the President.

Why the change?

The Biden administration has not commented on the Fed, beyond affirming that the President had confidence in Powell “at this time”.

The relationship between the Secretary of the Treasury and the Fed Chair is notoriously cordial. Therefore, it would seem odd that the administration would shake things up.

Criticism has come from the progressive wing of the Democratic party. In fact, they are the most vocal critics of Powell – a Republican appointed by a Republican president. Chief among them are Senator Warren and Representative Ocasio-Cortez.

Specifically, they argue that the Fed has not done an adequate job regulating the banking sector. Moreover, they contend the Fed hasn’t done enough to address “climate justice”, and has actually reduced the amount of financial oversight it does.

Does this mean a change in policy?

One of the reasons that the markets aren’t particularly worried about a change in the Fed Chair is that the critics of Powell aren’t demanding a change in monetary policy.

The assumption is that should Biden choose a new Fed Chair to placate the more progressive wing, the policy trajectory in terms of the taper and interest rate would likely remain the same. At most, a more progressive Chairman would presumably be more likely to support easing. In turn, this would generally support the stock market.

There is a wide range of potential candidates for the Fed Chair. A recent letter from Democrats calling for more diversity at the central bank and the Biden Administration’s history in appointments could help narrow down candidates.

At the moment, the top candidate is centrist Lael Brainard. Most notably, President Obama appointed her to the Fed’s board. And she is reportedly on good terms with her former “boss”, Janet Yellen.

She could be a “compromise” candidate with progressives who would prefer someone with a more aggressive regulatory career, such as Sarah Raskin.

Trading the news requires access to extensive market research - and that's what we do best. Open your Orbex account now.