Previewing the Fed chair nomination and which stocks that stand to benefit

Previewing the Fed chair nomination and which stocks that stand to benefit

Dan Clifton, Strategas Research Partners head of policy research, joins 'Power Lunch' to preview President Biden's Fed chair nomination and which stocks Clifton believes stand to benefit. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

If Lael Brainard is named Federal Reserve chair, the first move by financial markets may be to price in an even more dovish central bank.

That means the Fed would be expected to take longer to raise interest rates or tighten policy than under Fed Chair Jerome Powell. Currently, traders are expecting the central bank to begin raising rates in the second half of next year, once it winds down its bond-buying program.

Until just recently, Powell was expected to be renominated to the chairmanship, but President Joe Biden has now interviewed both Powell and Brainard and is expected to make an announcement by the weekend.

“I think the market views Brainard as slightly more dovish. I think the honest answer is there probably is not a significant difference between either candidate. The biggest asset that Powell has is the trust and the confidence of the market, and a kind of a track record of doing exactly what he thinks is right despite the considerable amount of political pressure,” said Ed Mills, Washington policy strategist at Raymond James.

Economists and investors perceive Brainard as more political, whether she proves to be or not. Mills said she is seen as political because of her donation to the presidential campaign of Hilary Clinton in 2016.

“Powell, I think, will be much less concerned about the midterm elections in determining when they should raise interest rates,” said Peter Boockvar, chief investment officer at Bleakley Global Advisors. “I’m not saying that’s what Brainard is going to do if she’s in that seat, but that’s going to be the perception.”

The choice of either candidate is not expected to be tumultuous for stocks, but financial markets could react.

Market impact from Brainard nomination

Boockvar and others do not expect much market reaction at all to Powell, if he is nominated for four more years, but it could be different in the case of Brainard.

“I think you’ll get a 10-minute bounce in the [stock] market if Brainard gets the appointment, and you’ll see more than just a 10-minute response in the Treasury market, where you’ll see a steepening yield curve,” Boockvar said.

Bond strategists say if Brainard is nominated, market inflation expectations could rise, with inflation-related instruments moving higher, like Treasury inflation-protected securities. The spread between the yields of shorter-duration Treasury notes like the 2-year and longer-duration notes like the 10-year could widen, with the 10-year yield rising due to inflation concerns.

Brainard, 59, has been a Federal Reserve Board governor since 2014. She was a former undersecretary of the Treasury for international affairs, during the Obama administration.

The 68-year-old Powell has been Fed chairman since 2018. A Republican and former private equity executive, he was appointed to the Federal Reserve Board by President Barack Obama in 2012 and named chairman by President Donald Trump.

“The reason why I keep going back to Powell, putting my political hat on, Biden would own any negative consequence that results from monetary policy, even more so if he changes who is at the top of the Fed,” said Mills.

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