Jan. 27, 2022, 3:56 a.m. EST

It’s not just Powell — Fed chiefs have been more hawkish after their first term, study finds

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    S&P 500 Index (SPX)
  • X
    U.S. 10 Year Treasury Note (TMUBMUSD10Y)
  • X
    U.S. 2 Year Treasury Note (TMUBMUSD02Y)

or Cancel Already have a watchlist? Log In

By Steve Goldstein

It certainly seems that Jerome Powell got more hawkish after he was re-nominated to be Federal Reserve chair.

The so-called Powell Pivot occurred in late November, barely a week after President Joe Biden re-nominated him, when he suddenly said it wasn’t right to call inflation “transitory” and warned of tighter policy ahead.

At the press conference on Wednesday, Powell talked of the need to be “nimble” and didn’t rule out making rate hikes at every meeting this year, which further unsettled an already rocky stock market /zigman2/quotes/210599714/realtime SPX -0.81% .

He wouldn’t be the first Fed chair to turn more hawkish in a second term, according to a draft of a research paper.

Matt Peron, director of research at Janus Henderson, and Yosef Bonaparte, the director of external affairs in finance and associate professor of finance at CU Denver Business School and a Janus Henderson research associate, have studied the impact of the seniority of Fed chiefs.

Their hypothesis was that the longer the Fed chair stayed in office, the more investors learn about their policies. Another hypothesis was that Fed chiefs in the first term would be reluctant to make rate hikes because they didn’t want the economy to slow, which would lower the likelihood of being reappointed by the president.

In a draft paper, the authors find economic policy uncertainty drops by 11% in the second, and more, terms of a Fed chair.

Bond yields also rise. The 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.80% , on average, rises by 98 basis points in the latter terms, and the 2-year yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -0.30% rises by an average of 57 basis points.

The good news, looking at the chart, is that bond yields then fade later in the second term. The data runs from June 1976 to Oct. 2021.

/zigman2/quotes/210599714/realtime
US : S&P US
3,941.48
-32.27 -0.81%
Volume: 2.44B
May 24, 2022 4:55p
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
2.74
-0.02 -0.80%
Volume: 0.00
May 25, 2022 9:01a
loading...
/zigman2/quotes/211347045/realtime
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
2.49
-0.0075 -0.30%
Volume: 0.00
May 25, 2022 8:59a
loading...

Get news alerts on S&P 500 Index — or create your own.
This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.