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What the election could mean for the Fed and Treasuries

Yahoo Finance's Brian Cheung breaks down how the election may impact the Fed and Treasuries and what it means for Jerome Powell's future at the Fed.

Video Transcript

ADAM SHAPIRO: To help us understand where all of this is headed and also the climbing yield on certain treasuries, Brian Cheung covers the Fed for us, and he joins us now. What do you want to swing at first, Powell or those yields?

BRIAN CHEUNG: Let's talk about Powell. As we know, Adam, every time there's an election, the parlor game over who's going to fill many different positions down in Washington DC begins. And at least for me, I'm very fixated on the Federal Reserve, arguably the most important policymaker in the monetary policy space in the world. Obviously, Jay Powell in that position right now.

So what would happen if a Biden or a Trump victory happens tonight? Well, what would happen to Jay Powell? I think, first of all, we need to take a step back and say, actually, his fate at the Federal Reserve may not go into the hands of Joe Biden if he does win that election, if the Democrats win. But rather, it would be in the hands of Lael Brainard, the current Fed governor.

She was an Obama appointee, and the word on the street is that she could be a favorite for a Biden administration post at the Treasury, which means that if she does get promoted to the US Treasury, that could pave the way for Powell to get renominated by the Biden administration because of his performance. ING noting that could be Wall Street's preference with the reappointment of Powell, quote, "being supportive for the financial market sentiment."

But here's the kick. Powell could get renominated under a Trump administration as well. Yes, it is indeed the case that if we rewind to last year, the chairman was being bashed on the president's Twitter account as someone who can't putt, having no touch, being a terrible communicator, having no guts. But Trump has actually said, as of May this year, that Powell is the most improved player, in part, because of his reaction and steadfastness and the quickness by which the Federal Reserve addressed this current recession.

Of course, all of those things also don't mean that he would be safe for sure, Deutsche Bank saying that even under a Biden administration, he could still want to put his mark on the central bank. And in fact, a Bloomberg survey yesterday said that there's only a 49% chance for reappointment of Chairman Powell under Trump and a slightly higher but still relatively low 57% under Joe Biden.

So a lot of possibilities out of the election tonight.

SEANA SMITH: And Brian, going off of that, just what's the timing of this? Because we know that Jay Powell, at least if his term, if he's not fired before that, his term doesn't end, although, there's a lot of complications there. But his term doesn't end until early 2022. So when would we likely start hearing these types of discussions take place?

BRIAN CHEUNG: Yeah, absolutely. I mean, we have to remember that at the beginning of the current Trump administration, it wasn't until really about 2017, mid 2017 that we started to hear chatter about whether or not President Trump was going to replace Janet Yellen, who was at the helm of the Federal Reserve at that time. Now, the way that these types of terms last, the Federal Reserve chairman can't be removed unless it was for cause, that's a whole separate legal issue.

But Fed Chairman Jay Powell will likely remain at his post through the duration of his term, regardless of whether or not it's a Biden or Trump victory. That means that his term would end in February of 2022, which means any sort of chatter would really begin at the end of 2021 next year, whether a Biden or a Trump administration would have to start thinking about potential nominees or if they wanted to renominate him.

So truly, this is a discussion that really isn't as relevant right now as it might be in about eight or nine months. But again, still relevant because this is the most powerful and important central bank in the world. And as such, we have a lot of market makers and investors paying attention to this space as we watch those elections tonight.