A client note from UBS Global Research on Powell as Federal Reserve System Chair
(In brief ... )
We expect continuity in policy from a Powell Fed
- Governor Powell has been a member of the Board of Governors since 2012. He has not dissented on policy, and his views have been uniformly in line with the center of the FOMC. Our baseline view of a hike in December and two more next year is reaffirmed with this news.
He's not an economist, but he could be
- Although Powell is not a trained economist, he has developed a deep understanding of macroeconomics and monetary policy. He is well liked and well respected on the Committee and understands the processes of the FOMC, as well. That combination means that he should be able to create consensus within the Committee fairly easily.
What about supervision and regulation?
- We do not think that there will be a wholesale roll back of regulation. Rather, we anticipate a measured adjustment, starting with the stress tests and possibly adjustments to the leverage ratio. A change in regulation there could have market implications, but the timeline likely remains somewhat distant; as we have said, we do not expect a material change before late next year.
Strategy's view for markets
- We foresee more hiking through next year than the market is pricing. For Treasury supply, this morning, consistent with our view, the Treasury left nominal coupon sizes the same this quarter. Both of these factors support a flatter curve.
- For swap spreads, a possible weakening of the supplementary leverage ratio requirement in principle is a widener. But, as noted, the timing for that change is far off, so swap spreads should remain under tightening pressure for some time.