In naming Jerome H. Powell as the next chairman of the Federal Reserve, President Donald Trump gets, for him, the best of both worlds.
His appointment allows Trump to put his own stamp on the Fed, appointing a Republican with a background in banking and private investments. He will replace Janet Yellen, an Obama appointee, in February.
But at the same time, Powell is widely expected to maintain Yellen’s dovish policies that contributed to a nine-year bull market and a 19 percent increase in the Standard & Poor’s 500 index since Trump’s election a year ago. The bull run is one of Trump’s crowning achievements of his young presidency, and he brags about market performance often on his Twitter account.
“Jerome Powell was widely expected to get the pick and this shouldn’t come as a big surprise,” says Ryan Detrick, senior market strategist for LPL Financial, a financial services company headquartered in Boston. “His take on monetary policy is similar to Yellen’s, so he isn’t likely to rock the boat too much at the start of his term.
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“But his views on regulation are more balanced than the outgoing Fed chair’s, which is likely what pushed him to the top,” Detrick says. “Besides, he was also [Treasury Secretary Steven] Mnuchin’s favorite, plus he is a Republican.”
The Fed chair has one of the biggest voices in the nation in regulating financial institutions and reducing market volatility, says Victor Li, economics professor at the Villanova School of Business at Villanova University in Pennsylvania. “The chairman of the Fed matters to individual investors because the direction of monetary policy matters,” he says.
Powell, who graduated from Princeton with a degree in politics and from Georgetown with a law degree, worked as a lawyer and investment banker in New York. He was in the Treasury Department under President George H.W. Bush, and was a partner in the Carlyle Group, an investment management firm, for nearly 20 years. He is the first non-economist to lead the Fed since 1979.
He was chosen over Yellen and Stanford economist John Taylor, a hawkish choice who favors substantially higher interest rates despite the nation’s low inflation.
“I would have rather had Janet Yellen be appointed for a second term, but given that a second term was unlikely, Powell is a reasonable choice,” says William D. Ferguson, an economics professor at Grinnell College in Iowa. “Powell is a Republican, but he was appointed to the Fed board by President [Barack] Obama. He supported the Fed’s basic approach to the financial crisis. This support contrasts strongly with the other top candidate, John Taylor, who was quite critical — and worried that it would encourage inflation. Which it won’t.”
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Named to the Fed in 2012, Powell has been a moderate voice, voting with the majority each time that the Fed approved increases in interest rates. While he is expected to carry over the dovish policies instituted by Yellen, investors should prepare for some changes, says Matt Lloyd, chief investment strategist at Advisors Asset Management in Colorado.
“Powell is perceived to be the most dovish of the candidates, though assuming he will remain so is not prudent. It is amazing how the entering of the arena as compared to being on the sidelines seems to alter the realities of the position and way with which you vote and communicate,” Lloyd says. “He has been one of the favorites and judging by the bond market’s reaction — or relative non-reaction — I don’t suspect any long-term investments will be altered. The more prudent will await the lengthy process it will take to get to his moving into the position.”
Professor David McClain, a professor and president emeritus at the University of Hawaii at Manoa’s Shidler College of Business, says Powell’s selection “makes me think of the shipboard order, ‘Steady as she goes.’
“Powell will continue the Fed’s gradual efforts to tighten credit markets, both via occasional increases in interest rates and by slowly unwinding the monetary base,” McClain says. “And if the economy hits a rough patch, I expect him to respond pragmatically, mindful of the Fed’s dual mandate to achieve full employment with price stability.”
Ferguson says Powell is a “safe” choice by Trump, and predicts that the markets will respond positively.
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“He may raise interest rates slightly more than Yellen would have, if he worries about inflation,” Ferguson says. “He is also, not particularly surprisingly, somewhat less supportive of certain financial regulations. It’s hard to know exactly what that means in practice.”
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Jerome Powell: Meet Donald Trump’s Pick to Lead the Fed originally appeared on usnews.com
