Great News From a Possible Fed Power Shift

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And every Friday, we'll showcase a featured topic from the most recent episode.

This week, we tackle a coming Federal Reserve transition that may just be a boon for the financial sector. Read on below...

A major shift may be underway in financial regulation...

And most investors aren't paying attention.

Federal Reserve Governor Michelle Bowman is the leading candidate to become the central bank's next vice chair for supervision. That's the top regulatory job overseeing the U.S. banking system.

Her expected appointment comes on the heels of one of the most aggressive regulatory pushes in more than a decade.

Banks have been under pressure since the 2023 regional banking crisis. The industry is bracing for higher capital requirements, stricter oversight, and more invasive stress testing.

But Bowman isn't likely to follow that playbook. She has long opposed sweeping regulatory expansions... voted against recent interest-rate cuts... and built her career as a champion of small and mid-sized banks.

Today, we'll look at how Bowman's regulatory philosophy could reshape the banking sector – and why investors might want to reassess their outlook for financial stocks.

Bowman's rise reflects a brewing political battle over bank regulation...

The push to appoint her follows months of tension in Washington. Bowman's predecessor, Biden appointee Michael Barr, stepped down last month after spearheading reforms that would have significantly raised capital requirements across the industry.

Barr's proposals were met with fierce resistance – not just from banks, but from fellow Fed governors.

And Bowman was one of the most vocal critics.

She has been skeptical of the Fed's stress-testing process... and has argued for a more "tailored" regulatory approach. She wants requirements to adjust based on a bank's size and risk profile, rather than applying uniform rules across the board.

This view has earned Bowman strong support in GOP circles. She was originally appointed to the Fed by President Donald Trump in 2018 to represent community banking interests.

She previously ran her family's small-town bank in Kansas and served as the state's banking commissioner.

Today, she has the backing of more than two dozen Republican lawmakers and is seen as the most logical candidate to fill the vacant supervision role quickly.

A policy pivot could lift the pressure weighing on financial stocks...

The vice chair for supervision can't change rules unilaterally. But the position plays a powerful role in shaping policy enforcement across the industry.

Bowman would oversee hundreds of bank examiners, giving her influence over how rules are interpreted day to day.

That could result in a more business-friendly tone... particularly for regional and mid-sized banks that have struggled under the weight of compliance costs and regulatory scrutiny.

Her hawkish stance on inflation also sets her apart. Bowman was the only Fed governor to vote against last September's interest-rate cut. She warned that the economy might still need tighter policy to contain price growth.

In short, Bowman represents a more conservative, less interventionist posture...

If a more pragmatic, tailored approach takes hold at the Fed, the cost of compliance could drop... particularly for regional and midsized banks.

That would support better earnings. And it would restore confidence in a sector that has lagged the market for more than a year.

Don't overlook the power of policy shifts. A quieter, more bank-friendly Fed could reshape the outlook for financial stocks in 2025 and beyond.

Regards,

Joel Litman
March 28, 2025

P.S. We dove deeper into the coming Fed shift in the latest episode of Altimetry Authority. Check it out right here... and be sure to click the "Subscribe" button.