Jerome Powell

Forex

The dollar would likely strengthen in response to any rate rises. Regulatory reforms would likely have the same effect as these could stimulate the economy by making credit cheaper and banking more profitable (potentially leading to further rate rises). Watch how pairs including EUR/USD and GBP/USD respond to news from the Fed.

Shares and indices

US shares and indices could be strengthened by any hint that Powell is deregulating financial services, as this could increase the availability of credit for businesses. However, any rate rises could offset this effect, as these tend to reduce consumer spending and make credit more expensive. Watch the US 500 and Wall Street.

Bonds

Bond prices are likely to fall if Powell pursues higher interest rates and continues Yellen’s plan to reduce the Fed’s balance sheet, as this could increase the supply of bonds on the market. Watch US bonds including Treasury Bond Decimalised and 10-Year T-Note Decimalised.

Commodities

Commodity prices in general would likely fall in response to any rate rises – in part because of the stronger dollar.

On the other hand, banking reforms could drive prices higher by making cheap credit available to businesses and consumers, who may respond by spending and investing more. Watch commodities like gold and high grade copper.

He’ll provide a degree of continuity

Having voted with Yellen in every vote of her tenure, it is expected that Powell will keep the Fed on the same path. He has said that his Fed will:

• Continue to raise rates as the economy recovers, sticking with the target inflation rate of 2%
• Continue to reduce the Fed’s balance sheet, aiming to take it from $4.5 trillion to $2.5-3 trillion over the next three to four years by letting bonds expire

On top of that, Powell has stated that he intends to maintain the independence of the Fed from government and other parties, and will ensure that the Fed remains transparent and accountable.

He believes regulatory reform isn’t always the answer

Powell is expected to take a softer approach to financial regulation than his predecessor. While he supports many of the regulations outlined in the Obama-era Dodd-Frank Act – for example stress testing of banks – he has said that he wants to conduct a thorough review of the policies, particularly those that place a regulatory burden on smaller banks.

This puts him in middle ground between some Republicans (including Trump) who want significantly looser regulations, and Democrats who are calling for tighter rules.

He’s promised a stable economic agenda

Powell is the first Fed chair in more than 40 years to take office without a PhD in economics. Some Democrats have raised concerns that he could act in the interests of Wall Street (and the 1%) or bow to political pressure, given his lack of experience, significant personal wealth and Republican leanings.

However, in his first ‘Semi-annual monetary policy report’ in February 2018, Powell promised his Fed would aim to achieve the objectives assigned by congress – namely maximum employment and price stability – by pursuing an inflation rate of 2%. If his actions in office reflect his words, it would likely confirm his economic agenda and go some way towards easing his critics’ fears.