A change of leadership at the Federal Reserve is imminent, but whoever is elected will not change the accommodative stance.

Recently, the news about the change of leadership of Fed set off a hot discussion in the whole market. Powell’s term as chairman of the Fed is set to expire in February 2022, and whether he will be reappointed as chairman of the Fed for the next four years is the focus of the market. Especially in the wake of the Fed’s Taper announcement, the market considering betting on future selections and is anxious for some indication of the policy bias.

Competitors

Current market expectations for mainstream Fed chair candidate center on current Fed Chairman Powell and Fed Governor Brainard. Powell is widely expected to win a second term, but Brainard is gaining support.

Powell

As his predecessor Yellen said, Powell has certainly done a good job, particularly in managing the transition without major missteps during a time of great challenges such as the covid-19. Powell, a Republican and former deputy Treasury secretary, joined the Fed board of Governors in May 2012 and has been nominated as chairman of the Fed since Trump took office. Powell is a centrist in monetary policy stance and supports easing financial regulation. Judging from his previous speeches and policy stance, although he had a "hawkish" tendency in monetary policy in the past, he paid more attention to balance and further strengthened the "expectation management" means of the Federal Reserve.

The Fed's monetary policy stance is expected to be more balanced if Powell is reappointed, but that is one of the biggest obstacles to his reappointment. Throughout history, the previous U.S. governments prefer to use relatively loose policies to stimulate and guarantee the growth momentum of the economy and the prosperity of the financial market in order to achieve political achievements. Powell raised interest rates four times in 2018, causing the stock market to tumble, which make the ruling Democrats worried, because they don't want any more fallout in next year's midterm elections.

Brainard

Another candidate, Fed Governor Brainard, a Democrat, was nominated as a member of the Fed board by Obama in 2014. Brainard is also a former deputy Treasury secretary whose monetary policy stance is seen as more dovish than Powell's and more in line with Democratic Party’s needs in the midterm elections. After Brainard was summoned by the White House, there was even more obvious turmoil in the market, with both short and long term treasury yields falling. Markets are beginning to anticipate whether brainard, if nominated, will favor a slower Taper process and a later tapering point.

Moreover, for the Fed's two main policy goals, Brainard prioritized full employment over inflation and was more tolerant of higher inflation. In a Speech in September, She said full employment should be measured not by aggregate measures but by the welfare and job market status of "marginalized" groups like people of color. In terms of financial stability, Brainard supports the development of digital currency in the United States, but does not support those virtual currencies with high volatility, inadequate supervision and severe risks. She strongly advocates the rectification of financial regulation, including the recent stock market turmoil caused by members of the Federal Reserve. On climate change, Brainard believes that the Fed should establish a climate monitoring and analysis model, and timely assess and predict the risk impact of climate change.

Brainard's track record on jobs, financial stability is also consistent with the Democratic Party, which will be an advantage in her chances of getting the Fed nomination.

Easing will continue

According to the latest odds on Predictit, a U.S. political betting website, Powell's chances remain high, even as Brainard's support continues to rise.

However, considering the overall easing environment of the Fed, many industry analysts believe that whoever wins, the basic framework of monetary policy will not change sharply, next June or so will finish the purchase.

Michael Feroli, chief U.S. Economist at J.P. Morgan, said there are many institutional factors that influence the Fed's decisions and provide continuity, including the role of regional banks and the influence of the Fed's staff. With Brainard seen as more dovish, the market could expect inflation expectations to rise further, but the renewed recovery in treasury yields also reflects affirmation of the continuity of Fed policymaking.

In short, there's no need to read too much into a Fed reshuffle or expect a dramatic change in policy, as the Fed does not want to see financial market turmoil.