Federal Reserve Chairman Jerome Powell speaks after President Joe Biden announced Powell's nomination for a second four-year term as Federal Reserve chair, during an event in the South Court Auditorium on the White House complex in Washington on Nov 22, 2021. (SUSAN WALSH / AP)

Jerome Powell getting a second term as chair of the Federal Reserve is positive for risk assets, despite the knee-jerk selloff to his renomination, according to strategists.

One of their key takeaways is that stocks should benefit from reduced uncertainty and the market should calm in coming days. Another is the dollar should get some support from the possibility of faster-than-expected Fed tapering.

Powell said the Fed would use its tools both to support the economy and labor market and prevent higher inflation from becoming entrenched.

Stocks and Treasuries fell and the dollar hit the strongest since September 2020 on bets that the Fed might tighten policy more quickly. Some strategists argued those wagers may be too aggressive as the Fed is expected to be cautious about raising interest rates. 

(Jerome) Powell’s reappointment reduces uncertainty, and hence should be a positive for risk assets. Historically, markets try to test new Fed Chairs, so we believe this outcome will be avoided.

JPMorgan Chase & Co strategists led by Marko Kolanovic

Here’s a selection of comments on the outlook for markets:

Less uncertainty positive for risk assets

“Powell’s reappointment reduces uncertainty, and hence should be a positive for risk assets. Historically, markets try to test new Fed Chairs, so we believe this outcome will be avoided. Additionally, Powell’s experience from 2H18, where policy tightening contributed to the strong market selloff into year-end, will likely result in a cautious approach to liftoff next year," said JPMorgan Chase & Co strategists led by Marko Kolanovic.

“Continuity is a good thing, it does remove some of the uncertainty and the messiness that Senate hearings really would create for the market so overall positive and this ongoing emphasis on the independence of the Fed is actually a really good thing for the US economy and our position in the global economy and that makes it a really positive backdrop for equity investing,” said Joanne Feeney, partner at Advisors Capital Management LLC.

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"But clearly folks built in now higher chance of earlier increases in interest rates, potentially faster tapering, which would tend to reduce the multiples on particularly higher multiple stocks," she added.

“Powell’s renomination removes a potential negative from the markets and provides the certainty that investors crave. Powell is sound, tested, respected and familiar to markets,” said George Ball, chairman of Sanders Morris Harris.

“While Powell’s continuance as Fed Chair will not spark a major fresh move upward in stocks, replacing him could have triggered major downward pressure on stocks, as investors dislike uncertainty and the unknown. Replacing Jerome Powell would have sent a psychological signal that the progressives are in power, which would have been unsettling to markets.”

We think Powell’s renomination leaves the dollar supported for now despite less broad-based appeal. We think the dollar can remain firm against the funders as the prospect of a faster taper remains a risk the market is chewing on.

TD Securities strategists including Jim O’Sullivan

Dollar Can Remain Firm

“We think Powell’s renomination leaves the dollar supported for now despite less broad-based appeal. We think the dollar can remain firm against the funders as the prospect of a faster taper remains a risk the market is chewing on,” said TD Securities strategists including Jim O’Sullivan.

“We continue to believe that history is being repeated, with markets too quick to price in rate hikes, with slowing in growth as well as inflation in 2022 likely to allow Fed officials to be patient in their quest for maximum employment.”

"That said, we are not expecting the data to suddenly weaken significantly in the next two months, so pressure on Fed officials to at least sound/look a bit more hawkish could only increase in the near term, including in confirmation hearings and in the December dot plot," they added.

Less dovish but calm will prevail

“The direction of the market moves is intuitive and in line with our expectations, but we look for the market to calm over the next day or two,” said Wells Fargo strategists including Mike Schumacher.

READ MORE: Dovish Fed lifts Wall Street stock futures to record high

“Powell is seen as less dovish than Brainard and has a less strict approach to regulation,” said Philip Marey, senior US Strategist at Rabobank. 

Still, he added that “the difference between the two is marginal” and “with inflation being more persistent than expected, she too would have had to address the inflation problem.”