The White House will decide whether to keep Powell in the next few months, but if it wants to change the position, it may trigger a reaction from the market. The US economy is currently facing problems such as high inflation and employment lagging behind the overall recovery.
In the July 12-15 survey, 36 of the 40 analysts, or 90%, said in response to an additional question about the US economy that Biden may choose to maintain the status quo. Jim O’Sullivan, the chief US macro strategist at TD Securities, also agreed.
At this week’s congressional hearing, Powell promised to provide “strong support” to complete the economic recovery from the epidemic and said that the Fed should continue to focus on getting as many people back to work as possible. He also said that the sudden rise in inflation is temporary.
The main focus of Powell’s employment plan successfully won the support of Biden and his administration along with the Democratic leaders. A private equity lawyer was promoted to chairman of the Federal Reserve by Trump, the former leader of the Republican Party, and Powell also won the initial recognition of his re-election from some congressional Republicans.
But during the hearing, members of both parties raised sharp questions, which may form an overview of questions surrounding Powell’s future debate framework. Republicans say they are worried that the recent high inflation may continue, and Powell may take too accommodative measures against it; some Democrats believe that he is not tough enough on Wall Street’s large banks.
The Fed’s high-level change comes at a time when the Fed is formulating a plan to phase out the US$120 billion in monthly debt purchases and the political debate on dealing with rising inflationary pressures. Discussions on both sides are sensitive and may disrupt the market.
Four analysts in the Reuters survey said that Biden would not re-appoint Powell as the chairman of the Fed, and two of them predicted that Fed Governor Brainard would take over. US Treasury Secretary Yellen and Powell are scheduled to discuss the hot real estate market and its risks with other regulators on Friday to ensure that the US is not prone to a market collapse similar to the 2008 financial crisis. The sudden rise in housing prices may pose another serious threat to the economy. At the same time, highly infectious Delta variant strains and further variants constitute the primary economic risk this year.