Who will chair the Federal Reserve Board?| Influencer‘s Insight •Jasper Lo

The Federal Reserve kept its monetary policy and quantitative easing at the same level during its first policy-setting meeting of 2021 after the new administration took office, which was expected by financial markets. All eyes then turned to Powell's post-meeting comments on the economic outlook, who surprisingly went contrary to popular belief. Instead of showing confidence in the US economic outlook, he said in a policy statement that the pace of recovery could be slowing down.

The US stocks have been refreshing record highs regardless of the rampant pandemic and the worsening economic indicators. It may come from the optimism among traders on both the vaccination rollout and Biden's more effective response to the pandemic. Although Powell told reporters there were risks to the short-term economy, he said he had received the first of two shots for his Covid-19 vaccine and added that there was good evidence to support a stronger economy in the second half of the year. The US stocks retreated in the wake of his claims, reflecting financial markets underwhelming to his bearish views.

With less than one year left, Powell's term of office will expire at the end of January next year. Biden may decide his re-appointment of Fed Chairman on his future performance, especially that in the first half of the year. If the economy bounces back by then, Powell will stay on for another term, otherwise, Biden may start considering other candidates. Such a choice has something to do with Biden's mid-term election in 2022. An economy not yet back to normal level will thrust Biden in worries of losing control of the House and Senate.

With that said, the new administration will regard both the fight against the pandemic and the economic recovery as its top priorities. It would be unwise for Powell to be so bearish about the short-term economy, in particular when the vaccination program was just launched and when the new government just took office. These actions will disfavor Biden. If Powell goes on commenting pessimistically like this, financial markets will see additional pressures while Biden will replace him with others due to the lack of confidence in him.