By Geoffrey Smith
Investing.com -- U.S. stock markets opened at fresh record highs on Monday after President Joe Biden said he will nominate Jerome Powell for another term as chairman of the Federal Reserve.
Lael Brainard, the Fed governor who was also in the frame for the job, will instead be promoted to deputy chair, replacing Richard Clarida when his term expires in February.
The appointments signal an endorsement of a highly pragmatic Fed policy that has been in place since the beginning of the pandemic, characterized by Powell's refusal to be hurried into tightening. The Fed will only begin reducing its bond purchases - which currently inject $120 billion of liquidity into the economy every month - from December. Much of the liquidity created by that policy over the last two years has found its way into securities markets, pushing stocks to all-time highs and real interest rates - bond yields adjusted for current inflation - to their lowest in decades.
By 9:45 AM ET (1445 GMT) the Dow Jones Industrial Average was up 150 points, or 0.4%, at 35,752 points. The S&P 500 and the Nasdaq Composite were both up 0.6%.
On Friday, markets had dipped after Clarida had indicated that the Fed will discuss accelerating the phase-out of bond purchases in view of the sharp rise in inflation in recent months.
"Powell has said the Fed will be patient but will not hesitate to accelerate tapering of asset purchases and raise rates," said Diane Swonk, Grant Thornton's chief economist, via Twitter (NYSE:TWTR). "Now the challenge is to be prudent with rate hikes without panicking. Central bankers are hardwired to worry more about inflation than employment."
Currently, the market is more aggressive about pricing in rate hikes than the Fed. Investing.com's Fed Rate Monitor Tool suggests nearly a 50% chance of the first hike coming before June, when the quantitative easing program is set to end. It also suggests a more than 60% likelihood of three 25 basis point rate hikes by the end of next year.
Among individual movers, Vonage stock stood out with a 25% gain after receiving a bid from Swedish telecoms equipment company Ericsson (NASDAQ:ERIC). Ericsson ADRs were down 4.9% on concerns that the company is overpaying to find a way out of its current problems, which have included loss of market share in China.
Chipmakers were strong again, with Nvidia (NASDAQ:NVDA) stock rising 3.6% and Advanced Micro Devices (NASDAQ:AMD) stock rising 3.5%, against a backdrop of sustained enthusiasm for all things linked to the so-called 'metaverse'. While are there are few certainties about how the metaverse will look, one of the more certain bets, as Nvidia's CEO pointed out last week, is that it is going to require a lot of computing power. One other stock that has enjoyed a metaverse-linked surge in recent days - gaming company Roblox (NYSE:RBLX) - took a breather however. Roblox stock fell 4.8% but is still up more than 60% over the last two weeks.