We all know who the most powerful person in the world is, right? We know that Donald Trump is powerful, right? Like it or not, he is the most powerful person in the world if you like or are neutral about him; he is not the most likeable personality and definitely not as important to some investors who may feel that the Fed Chairman or Chairwoman is more important.
Some like Kopi, some like Teh, some like siu dai, some like ka dai. Nonetheless, we have to admit that Alan Greenspan and Ben Bernanke were powerful while Janet Yellen continues to be widely watched and followed for her market-moving speeches.
The US Federal Reserve is an important institution in the world, just like how kopitiams are important to coffee addicts who cannot start their engines in the morning without a cup of hot coffee. So whatever the Fed Chairman hints or announces will have an impact on the market.
Yes, they are that important! It is simply because the US Federal Reserve decides on the future direction of interest rates – a deciding factor of borrowing costs and, ultimately, how the financial markets would move.
It Has Been Brewing!
Academics, analysts, observers and soothsayers alike, fall over themselves trying to figure out who would be the next Fed Chairman when Greenspan “retired”. When Bernanke was appointed, the same group of people tore their hair trying to analyze the psyche of the new Fed Chairman so as to predict his behavior towards monetary policy. The same happened when Bernanke “retired” and Janet Yellen took over.
Now that it is no longer a secret that Janet Yellen will not be hired as the next term’s Fed Chairwoman, which will make her the only Fed Chairperson in the last 40 years not to be renewed, the market was abuzz with rumours about her possible successor who is now almost confirmed when President Donald Trump announced that Jerome Powell will be given the hot seat!
Jerome Powell, according to observers, is an appointee out of the norm as he is not a trained economist. He joined the Fed as a governor in 2012 but has always been a part of the consenting party. He has not dissented on policies with views that are “compliant” and in line with the Federal Open Market Committee (FOMC).
During his stint with the Fed, he has developed a deep understanding of macroeconomics and monetary policies. Well-liked by his peers and respected on the FOMC, he is likely to be able to garner consensus with relative ease when it comes to the crunch.
Feathers on his cap include drafting new bank regulations after the financial crisis. He has supported more transparency regarding bank stress tests, relaxing some aspects of the Volcker Rule that limit bank trading activities, and reducing the regulatory burden on small and medium-sized banks, among other potential regulatory changes.
A Powell Fed should continue raising rates gradually, in our view. Our base case is for a 25-basis-point hike in December and two more next year. We expect monetary policy to remain supportive of stocks, and we remain overweight global equities relative to US government bonds.