The new head of the Federal Reserve made his public debut this week, appearing before two congressional committees for routine Q&A sessions. If conservatives were looking for a dramatic departure from the status quo, they were sorely disappointed.
Jerome Powell, the new chairman of the central bank, largely toed the line when it came to monetary policy, indicating that he remains committed to a series of gradual rate hikes started under his predecessor Janet Yellen, an appointee of President Barack Obama. While Wall Street analysts disagree about whether the Fed may hike interest rates three or four times this year, the main takeaway — that Powell doesn’t make a radical shift away from the Fed’s current course — was reassuring to many.
“In our first formal view of Powell as chair of the Fed, we saw confirmation in our strongly held view that Powell represents continuity for monetary policy and is a centrist, a pragmatist, and a highly qualified choice for chair,” UBS U.S. Chief Economist Seth Carpenter says in research note.
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What else did investors learn about the new Fed chair?
He’s upbeat on the economy. When Powell made the rounds this week, first to the House on Tuesday and then Senate on Thursday, he quickly learned the power of so-called “Fed speak.” Wall Street routinely scours every word from the Fed chair, and sometimes, financial markets can turn on a mere word or phrase.
On Tuesday, Powell tried to be careful with his words, saying he would not “prejudge” the Fed’s next round of forecasts, which will be released later this month, but when he sounded bullish on the U.S. economy, some market participants interpreted it as a signal. “My personal outlook for the economy has strengthened since December,” Powell says.
Bond yields rose quickly, and stocks fell, as investors thought the rosy outlook could prompt the central bank to be more aggressive this year, raising interest rates four times, instead of three, as penciled in by the Fed’s prior forecasts.
He doesn’t think the economy is close to overheating. Two days later, Powell reiterated his positive comments about the economy, but added an important detail: “There’s no evidence the economy is currently overheating.” He also elaborated on his viewpoint on wage inflation, stating “We don’t see any strong evidence yet of a decisive move up in wages.”
These points are important because they temper some of the optimistic tone. As to the question of whether the Fed will pursue three or four rate hikes this year — in the end, investors will have to wait until March 21 to see the central bank’s next round of forecasts.
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Inequality is not his domain. When Yellen and Ben Bernanke before her, were at the head of the Fed, they each expressed deep concern about income inequality and the impact on the broader economy, usually going into some depth on the topic at Congressional hearings.
But when pressed by Democratic lawmakers at this week’s hearings, Powell had little to say on racial inequality, income inequality and immigration, pointing instead to how increasing worker productivity and maximizing employment could help the workforce, generally.
“We don’t have those tools,” he says of the Fed’s inability to increase worker productivity through training or other programs. “Those aren’t things we control, but those are things Congress and the administration, I believe, would be well served to focus on.”
He believes the new tax law will bolster the economy. Former Fed chairs Yellen and Bernanke were careful to emphasize the Fed’s independence from political pressures, and usually would decline to give their backing to any specific fiscal policies emanating from Congress or the White House. Powell partly abided by this policy in response to some politically-charged questions from lawmakers this week.
That said, he did lend some support to the idea that Republicans’ corporate tax cuts will boost spending, and eventually wages, in the economy.
“Lower corporate taxes should lead to higher investment,” he says. “Higher investment should lead to higher productivity over time and higher productivity should lead to higher wages over time.”
He’s critical of tariffs. Interestingly, Powell was asked about his stance on trade policy, just ahead of a major announcement from President Donald Trump, imposing a 25 percent tariff on steel imports and 10 percent on aluminum.
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“As Chairman Bernanke said, the tariff approach is not the best approach. The best approach is to deal directly with the people who are directly affected, rather than falling back on tariffs,” Powell says. “But again, these are not issues that are consigned to us, they’re really for you and for the administration.”
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5 Things Investors Learned About Fed Chairman Jerome Powell originally appeared on usnews.com
