The bond markets will not have a huge reaction to the nomination of Governor Jerome Powell as chair as of Federal Reserve Board, seeing it as a continuation of the monetary policies of Janet Yellen and Ben Bernanke before her.

Powell, announced Thursday as President Trump's choice for Fed chair, has long supported a gradual path of rate increases and said the Fed is not behind the curve on monetary policy. After Yellen, his selection perhaps is the best outcome for the market, which gets a chair who will continue the current monetary policies that have the markets booming, with the added bonus that he is more amenable to deregulation than Yellen.

Jerome "Jay" Powell
Jerome "Jay" Powell Bloomberg News

With a Powell-led Fed, higher inflation “may do little to bear steepen curves or catalyze muni weakness on its own,” according to Michael D. Zezas, a Morgan Stanley strategist.

This choice, he wrote in a muni strategy brief, “merely make[s] the Fed more confident in sticking to its current path.”

Powell “doesn’t represent a big shift” from the Yellen Fed, said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research, “I don’t think the markets will be too upset by this appointment.”

He “generally supported the Bernanke-Yellen approach to ameliorating the financial crisis” she noted.

But, Gelinas warned, Powell has “always focused on goods and services prices, not asset prices,” and asset prices may pose a bigger risk to the economy.

The markets will still count on a December rate hike, according to Gary Pzegeo, head of fixed income at CIBC Atlantic Trust Private Wealth Management, as “the existing team is locked in for this year.”

Gelinas agreed the rate increase will occur. “I think unless something radically changes in the economy or the perception of the economy,” the Fed will raise rates at its December meeting.

Powell is “viewed as a centrist,” according to Paul Mortimer-Lee, chief market economist at BNP Paribas, meaning he is unlikely to push for “major changes for the Fed’s recent policy stance.”

“Powell is not known for being unconventional on monetary policy,” Mortimer-Lee wrote in a note on possible Fed choices earlier this Fall. Recent speeches were basically “on message” and “mainstream,” he said.

“At Jackson Hole, he described inflation as ‘kind of a mystery’ that gave the Fed the ‘ability to be patient’ in raising rates,” Mortimer-Lee wrote.

In a statement released by the Fed, Powell said, "I am both honored and humbled by this opportunity to serve our great country. If I am confirmed by the Senate, I will do everything within my power to achieve the goals assigned to the Federal Reserve by the Congress: stable prices and maximum employment."

The Fed also released a statement from Yellen, which said: "I congratulate my colleague Jay Powell on his nomination to be Chairman of the Federal Reserve Board. Jay's long and distinguished career has been marked by dedicated public service and seriousness of purpose. I am confident in his deep commitment to carrying out the vital public mission of the Federal Reserve. I am committed to working with him to ensure a smooth transition."

Powell joined the Board of Governors on May 25, 2012, to fill an unexpired term. He was reappointed and sworn in on June 16, 2014, for a term ending January 31, 2028. Previously, Powell was a visiting scholar at the Bipartisan Policy Center, and was a partner at The Carlyle Group.

Powell served at the Treasury under President George H.W. Bush, focusing on financial institutions, Treasury debt, and similar areas.

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Gary Siegel

Gary Siegel

Gary Siegel has been at The Bond Buyer since 1989, currently covering economic indicators and the Federal Reserve system.