Powell stays: The pools point to 2 or 3 rate hikes in 2022

Powell stays: The pools point to 2 or 3 rate hikes in 2022

US President Joe Biden finally opted for Jerome Powell and his re-election as president of the US Federal Reserve (Fed) yesterday, leaving Lael Brainard as vice president.

“Powell was still the favorite to remain at the head of the Fed, compared to the Democrat Brainard, more prone to maintaining clearly accommodative monetary policies,” they highlight in Link Securities.

“In addition, Powell was the darling of Wall Street, since investors are not usually very in favor of changes in the direction of the Fed,” they add.

“Biden has preferred to continue at a difficult time in the face of high inflation and a still incomplete recovery in the labor market,” they agree in Income 4 (MC: RTA4 ). 

Powell’s appointment to a second four-year term provides stability for investors and gives the markets one less issue to worry about as inflation is higher than expected, virus cases are on the rise again and the ceiling of Federal Government debt should be increased very soon, ”says Ben Laidler, Global Markets Strategist at eToro.

However, at Bankinter (MC: BKT ) they point out that “the stock exchanges initially interpreted Powell’s re-election as a factor of less uncertainty and reacted upward, while the bond market discounted a possible acceleration in tapering, with possible increases in rates in June 2022, and ended up taking the stock markets to negative territory ”.

And so it is. “Following Powell’s confirmation at the head of the Fed, futures showed a very significant increase in the probability that the Fed will raise its official interest rates in June 2022, a probability that rose to 77% from 67% previously”, they point out in Link Securities.

“We expect that the withdrawal of QE, which began this November, will be completed in mid-2022, at a rate of 15,000 million dollars per month, unless the persistence of very high inflation levels forces us to withdraw these stimuli more quickly” , reiterate in Rent 4. 

“Once the debt purchases are concluded, the key to the timing of the start of interest rate hikes will be in the labor market and in meeting the inclusive full employment objective, although the re-election of Powell (‘vs’ Brainard, perceived by the market as more dovish) is accelerating expectations of market rate hikes, which discounts the first in June 2022, with the possibility of a second in September and a third in December 2022 ”, these analysts point out. 

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