If not Yellen, then Powell is Fed’s best bet
The chairman of the Federal Reserve is often considered the world’s second most powerful job, after the U.S. president. Possibly No. 1 in times of peace.
The decisions the chairman makes in guiding the nation's central bank directly affect our job prospects, our mortgage and auto interest rates, the value of our houses and retirement accounts, and the bite inflation takes out of our paychecks.
That’s why I am relieved that President Trump chose Jerome “Jay” Powell to guide the Fed for the next four years.
I draw that conclusion as a journalist who has followed the Fed for four decades, interviewing Powell on more than a dozen occasions since he joined the Federal Reserve’s Board of Governors five years ago.
Ideally, Trump would have renominated Fed Chair Janet Yellen, an Obama appointee who has masterfully overseen an economy marked by solid growth, low unemployment and inflation, and a steadily rising stock market. Powell is the next best choice.
Why? I can’t reveal our specific conversations, since members of the Fed Board traditionally speak off the record to avoid roiling financial markets.
Yet from our many conversations, I can provide a portrait of a thoughtful, collegial and pragmatic man who believes in public service for the good of the country, rather than on behalf of an ideological or partisan cause.
Powell, 64, a lawyer, would be the first non-economist to head the Fed since the disastrous 17-month reign of corporate executive G. William Miller in 1978. Miller proved inept at keeping inflation from getting out of control, forcing President Carter to replace him with inflation-tamer Paul Volcker.
Powell, by contrast, has developed central bank expertise from his time on the board. Plus, the economic conditions he will inherit are strong and stable. His job will be to keep the Fed on its steady-as-you-go course, barring a shock to the financial system.
Powell, a Republican who made a fortune as an investment banker, also has plenty of Washington experience, including a stint as a top Treasury official under President George H.W. Bush. He is not a fierce partisan or someone wedded to policy positions regardless of the facts.
A good example has been the Fed’s decision after the financial meltdown in 2008 to keep short-term interest rates extraordinarily low and to take the unprecedented step of buying trillions of dollars worth of government bonds to keep long-term rates low, too.
Critics warned that the Fed was on course to unleash a new bout of inflation. Powell, who admits he used to be an inflation hawk, rejected that view and, after looking at the data, sided with Yellen in sticking to a stimulative course since he joined the board.
We now know who was right. Today, inflation is lower than the Fed target and shows no sign of shooting back up.
Powell’s approach has been to give careful consideration to all arguments and pursue the course with the highest chance of a good economic outcome. He stresses the need to be open to fresh approaches based on economic events.
In doing so, he has positioned himself at the center of the Fed, between the hawks who want to raise rates faster and the doves who want to keep rates low longer. It turns out, that also puts him where Yellen has been. Which means Powell, who has always spoken well of her, would represent continuity, much to the relief of financial markets.
Powell might favor somewhat looser Fed oversight of the banking industry than Yellen, given his private-sector background, but it is hard to see much difference between the two on the crucial task of determining interest rates.
Trump has shown a preference for filling his administration with partisan warriors and ideologues. In this case, the president made an exception. And that will benefit all of us.