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A screen displays a statement by Federal Reserve Chair Jerome Powell following the U.S. Federal Reserve's announcement as a trader works on the trading floor of the New York Stock Exchange (NYSE) on Sept. 22.BRENDAN MCDERMID/Reuters

U.S. President Joe Biden’s pick of Jerome Powell to continue as Federal Reserve chair reassured investors who said it gave some predictability as the central bank prepares to start hiking rates and slows the pace of bond buying.

Many investors had hoped that Mr. Powell, who was nominated as chair by former president Donald Trump in 2017, would be renominated by Mr. Biden for another four-year stint. On Monday, Mr. Biden nominated Mr. Powell for a second four-year term, with Lael Brainard, the Fed board member who was the other top candidate for the job, vice-chair.

Mr. Biden also has three Fed seats to fill, including the vice-chair for supervision, and intends to make those in early December.

Biden nominates Jerome Powell for a second term as Federal Reserve chair

Mr. Powell’s current term, which is due to run out in February, 2022, has prove positive for risk assets, with the S&P gaining 69.7 per cent since his appointment on Feb. 5, 2018 and hitting a series of new records in part helped by emergency measures the Fed launched in response to the coronavirus pandemic.

“My reaction is one of relief,” said Peter Tuz, president of Chase Investment Counsel. “He was a steady hand, I think people liked in general the policies that he enacted since [COVID-19] first became an issue.”

While Mr. Tuz said Mr. Powell was “liked by both parties, he has been a pretty stable force.”

Mr. Powell had always been the favourite, but he was seen as less of a slam-dunk after his odds in betting markets fell following sharp criticism of his performance by progressive Democrats and a trading scandal among Fed officials.

Online betting website PredictIt gave Mr. Powell a 79-per-cent chance of being confirmed by the U.S. Senate as of Monday morning, down from a 90-per-cent chance on Sept. 12, while the odds that Fed governor Ms. Brainard would be nominated had increased to 23 per cent from a low of 6 per cent in September.

While the leadership of the U.S. central bank is always important to markets, Mr. Biden’s decision takes on heightened significance this year as the Fed starts tapering its US$120-billion in monthly bond purchases.

At the same time, the Fed is confronting a historic surge of inflation as global supply chains remain disrupted by the coronavirus pandemic. The Fed earlier in November released its asset-purchase schedule as it begins to slow purchases.

“The markets are going to take this as a sign of relief,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

Mr. Pavlik said Ms. Brainard taking the vice-chair role “at least puts some kind of pressure on Powell to not ... move too quickly with raising rates.”

Ms. Brainard, who was nominated to the Fed board by former president Barack Obama in 2014, is widely seen as more dovish than Mr. Powell in part because of her push to retain supereasy monetary policy until there is more progress on job recovery.

Ahead of the announcement, markets had priced in some risk of Ms. Brainard being elevated, and the news of Mr. Powell caused fixed-income markets to price in “a bit more Fed tightening” while bank stocks gained, “with Brainard being viewed as more dovish on monetary policy,” analysts at TD Securities wrote.

U.S. government bond yields, which move inversely to prices, rose on the news, with those on two and five-year Treasuries hitting their highest levels since early 2020. The U.S. dollar extended gains against a basket of currencies and the S&P 500 gained, boosted by bank stocks.

Futures on the federal funds rate, which track short-term interest rate expectations, have fully priced in a quarter-point tightening by next June, up from more than 90 per cent before Mr. Biden’s announcement.

Investors had grown nervous about Mr. Powell’s reappointment, with some saying they’d expected it earlier in the calendar – as has been the case with prior chair announcements.

Mr. Powell was nominated chair by Mr. Trump on Nov. 2, 2017, U.S. Treasury Secretary Janet Yellen was nominated by Mr. Obama on Oct. 9, 2013, and Ben Bernanke was nominated by former president George W. Bush on Oct. 25, 2005, and renominated on Aug. 25, 2009.

After the nomination, Mr. Powell will need to be vetted by the Senate banking committee before going to a vote in the full Senate, where a simple majority would be needed. Most observers believe Mr. Powell would get the backing of most, if not all, of the Republicans.

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