Fed nominee Jerome Powell expected to stay the course.
No major shift expected from Trump nominee
WASHINGTON — President Trump nominated Jerome Powell to chair the Federal Reserve on Thursday afternoon, bypassing Janet Yellen for a second term but turning to a replacement who is expected to stay the course on monetary policy if the economy continues its steady growth.
“He’s strong, he’s committed, he’s smart,” Trump said in the Rose Garden, where he introduced Powell as his choice. Using Powell’s nickname, the president said, “Based on his record, I am confident that Jay has the wisdom and leadership to guide our economy through any challenges that our great economy will face.”
Less certain is where Powell would lead the
Fed if the economy falters. Powell, a member of the Fed’s board of governors since 2012, has consistently voted with Yellen, and colleagues consider him a centrist and pragmatist. But his tenure as a central banker has been relatively brief, and he has expressed skepticism in the past about the unconventional measures that the Fed has taken in the wake of the severe recession of 2008 and 2009.
Powell could also depart from the Fed’s current trajectory when it comes to regulating banks and other financial institutions — rules Trump has said should be loosened.
Powell is a Republican with deep roots in the party’s establishment and in the financial industry, a lawyer by training and investment banker by trade. As chair, a position some consider as the second most powerful post in government, he will be the voice of an institution that is charged with keeping the economy on track by adjusting interest rates that influence the decisions of millions of Americans.
In replacing Yellen, Trump is breaking with precedent. The previous three Fed chairs were reappointed, in each case by a president of the opposite political party.
Trump said that he respects Yellen and on Wednesday called her “excellent.” The Fed under her leadership has sharply reduced unemployment while maintaining control of inflation, coming as close to achieving its congressional mandate as at any time in its history. But Trump and his advisers wanted to pick their own Fed leader.
“Our view is Powell is the GOP version of Yellen, with the added kicker of wanting to reduce regulation.” Tom Porcelli, RBC Capital Markets
The position requires Senate confirmation, but Powell is likely to attract broad support from the Republican majority. He won some Democratic votes when he was confirmed as a Fed governor in 2012, and when he was confirmed again in 2014.
“Our view is Powell is the GOP version of Yellen, with the added kicker of wanting to reduce regulation,” said Tom Porcelli, chief U. S. economist at RBC Capital Markets. He said Powell was “the easy choice if you want to maintain continuity.”
But some argue that there is more uncertainty surrounding Powell’s approach than for other recent Fed chairs. Lewis Alexander, chief U. S. economist at Nomura Securities, said it is unclear how aggressive Powell would be in responding to an economic slowdown.
“I don’t think it’s right to think of Powell as a Yellen clone,” Alexander said. “In terms of the core issues of monetary policy, we just don’t have much of a baseline for him.”
Powell would also be the first Fed chair in four decades who does not have a degree in economics — meaning he lacks a body of academic work that analysts can parse for his views.
Yellen’s work on the labor market and former Fed chair Ben Bernanke’s focus on financial crises both gave insight into their leadership at the Fed, said Sarah Binder, a political scientist at George Washington University. But beyond Powell’s performance as a “loyal lieutenant” to Bernanke and Yellen, “we don’t know all that much about any existing priors Powell has about monetary policy,” she said.
As a member of the Fed’s board of governors, Powell also raised concerns that the Fed was trying too hard to revive economic growth with its huge bond- buying program — calling into question whether he would be as willing as Bernanke and Yellen to use such tools again.
Powell may also diverge from his predecessor on financial regulation. In a June appearance before the Senate Banking Committee, Powell made clear that he did not fully embrace the Trump administration’s plans for significant reductions in regulation, released a few weeks earlier, but said that the Fed’s current rules showed opportunities for improvement.
“I see it is a mixed bag,” he said. “There are some ideas in the report that make sense, maybe not as expressed there, but it would enable us to reduce the cost of regulation without affecting safety and soundness.”
But, he continued, “There are some ideas that I would not support.”
He could face significant internal pressure, however. Trump already has chosen Randal Quarles, the Fed’s vice chairman of supervision, to lead the push against regulation. The two men were colleagues at the Carlyle Group.
Powell has expressed support for legislation that would require financial regulators to apply cost- benefit analysis to proposed rules. But he pushed back against proposals to allow large banks to borrow more of their funding, saying that requiring large banks to raise capital from investors had strengthened the financial system.
“I happen to think we’ve gotten it about right,” he said.