Trump’s Fed pick to face interest rate test
WASHINGTON — President Donald Trump’s choice for the next Federal Reserve chief, Jerome H. Powell, will face an immediate test as stronger economic growth exerts greater pressure on the central bank to step up the pace of interest rate hikes.
Trump has said he wants interest rates to stay low, and that presumably was an important consideration in the president’s decision, announced Thursday, to replace Janet L. Yellen with Powell, a Fed governor since 2012 who has closely aligned himself with the cautious policy moves and positions forged by Yellen. And like Yellen, whom he would succeed in early February if confirmed by the Senate, Powell has shown he is in no hurry to raise rates.
But with the U.S. economy gathering steam and stocks surging to levels that have some worried, Powell soon could find himself in the uncomfortable position of having to build consensus around making more rapid rate increases, seldom a popular or easy thing to do. And some analysts think that job will be all the harder because Powell, unlike Fed chairs over the past four decades, is a not an economist. He is a lawyer and former investment banker.
Already debate is sharpening inside the Fed as policymakers at one end press to hold off on lifting interest rates while those on the other are keen to take more aggressive action to keep inflation in check. What’s more, the tax overhaul unveiled Thursday by Trump and congressional Republicans is likely to further push up interest rates if the cuts result in bigger federal deficits and debt, as expected.
“He’s got a very large challenge in that within the Fed, there’s a growing divide about the trajectory of rate hikes,” Diane Swonk, a Chicago economist and longtime Fed analyst, said of Powell. “He’s been straddling the middle,” she added. “The question is, can you straddle the middle and corral the cat?”
Trump had narrowed his list of candidates to five people, including Yellen, whom he praised as “excellent” this week. In not choosing her, Trump broke a pattern of several decades in which Fed chairs were re-nominated by presidents of opposing parties. Trump had indicated that he wanted to pick his own person for the job. He also had seriously considered John B. Taylor, a Stanford economist who has been a critic of Fed policies under Yellen.
Yellen, a Democrat, was tapped by President Barack Obama for the four-year term. The former University of California, Berkeley economics professor will be the first Fed chair to serve less than two terms since G. William Miller’s short tenure as Fed leader from 1979 to 1981.
Powell, 64, is a registered Republican. He was appointed by Obama in 2012 to fill a vacant seat on the Fed board and was easily confirmed.