Sun Sentinel Palm Beach Edition
Investors wait for Trump’s decision on Fed leader
WASHINGTON — This week’s Federal Reserve policy meeting is shaping up to be an afterthought next to that other imminent Fed event of the week: President Donald Trump’s announcement of who will lead the central bank for the next four years.
With no policy changes expected from the Fed when its meeting ends Wednesday, investors are instead awaiting the news of Trump’s choice for Fed chair — and what it could mean for the direction of interest rates, and perhaps for the economy.
A senior administration official said Monday that Trump’s leading candidate is Jerome “Jay” Powell. This official, who spoke on condition of anonymity to discuss personnel deliberations, stressed that the decision wasn’t final. Another official said the announcement was planned for Thursday.
Trump said last week in an interview that his decision had come down to two or three candidates. The finalists are thought to be Powell; Janet Yellen, the current Fed chair; and John Taylor, a Stanford University economist.
In Powell, Trump would be selecting a policymaker with a reputation as a moderate whose stance on interest rate increases would likely deviate little from Yellen’s cautious approach. Powell would, though, be expected to be marginally more favorable toward easing some of the stricter financial rules that were enacted after the 2008 financial crisis. Trump has complained that those rules have been too restrictive.
On Wednesday, when the Fed issues a statement after its meeting ends, it’s all but sure to keep rates unchanged. But it might issue a hint of what is widely expected: that it’s likely to raise rates modestly for the third time this year at its next meeting in December. Another rate hike would reflect the economy’s steady gains. It would also suggest that the Fed is confident that inflation will pick up and reach its 2 percent target rate relatively soon.
“Yellen and many of her colleagues believe that stronger economic growth will lead to higher wages and then higher inflation,” said Sung Won Sohn, an economics professor at California State University, Channel Island’s Martin Smith School of Business.
The problem with toolow inflation is that it can slow the economy by causing consumers to delay purchases if they think they can buy a product or service for a lower price later. And so far this year, inflation has actually been slowing. The trend that has raised doubts about whether, as the Fed has suggested, lower-than-optimal inflation reflects mainly temporary factors, such as a price war among cellphone service providers, or rather something more fundamental.
Last week, the government estimated that the economy grew at a solid 3 percent annual rate in the July-September quarter despite severe damage from two hurricanes. The economy has now posted two straight quarters of at least 3 percent annual growth.