Jay is here to stay

11/25/2021 | 11:18am

The darling of investors is back. Against all odds, Joe Biden reappointed Jerome Powell to a second term as head of the FED, handing the number two spot to Lael Brainard, a long-time Federal Reserve official who was tipped to replace him and who is now vice-chair of the Board of Governors. Corporate executives are rubbing their hands together as they see a still ultra-accommodating monetary policy on the horizon.

The 68-year-old former Republican investment banker, appointed by Donald Trump, was rumored to be giving way to the Democratic nominee, for obvious political reasons, and because Jay, as he is known, has reportedly flouted the institution's ethics rules. At the end of 2020, before markets fell, he sold off a large part of his assets, thus reaping a capital gain estimated at between 1 and 5 million dollars.

Nevertheless, for four years, he was able to keep the ship on course in the midst of the unprecedented COVID-19 storm. He encouraged a generous central bank policy, committing $120 billion in asset purchases per month and lowering interest rates to near zero. In doing so, he helped stock markets soar, allowing indexes to break new records, as did the S&P 500. "Governor Powell has provided steady leadership during a period of unprecedented challenges, including the deepest economic recession in modern history and attacks on the Federal Reserve's independence," The White House states.

The Fed chairman's ability to prop up markets has prevented a big hole in the U.S. economy. But the flip side of the coin has been a worrisome rise in inflation lately, even as a new wave of coronavirus spreads at a rapid pace. Faced with this rise in inflationary temperature, Jerome Powell, asserts his favorite expression: "it's transitory". This concern was quickly swept aside by stock markets, which largely welcomed the central bank's expansionary policy in recent months. Companies expect no less for the next four years, but the FED will have to take its foot off the monetary gas pedal, sooner or later...

By Amandine Victor


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