U.S. President Donald Trump last week named Jerome Powell as his nominee for chairman of the Federal Reserve Board of the United States. Powell is a solid, conventional choice, who will provide more continuity than change in policy at the world’s most influential central bank. That is reassuring at a time when disruption seems to prevail in policymaking in Washington.
While Janet Yellin, the current chairperson, has only had one four-year term — all her predecessors since the late 1970s served two — she was a frequent target of Trump during the 2016 campaign. Candidate Trump accused her of “being political” by keeping interest rates low to help the administration of President Barack Obama, and asserting that the policy had created bubbles in the stock market that would cause problems when rates had to rise. Since taking office, however, the president has had no issues with Wall Street’s strong performance and has repeatedly taken credit for it. When he announced Powell’s nomination last week, he complimented Yellen for doing “a terrific job.”
That was not enough to win her a second term, however. That reflects Trump’s desire to put his stamp on as many institutions of the U.S. government as he can, along with a reflexive desire to be rid of anything or anyone that shows his predecessor’s influence.
In some ways, Powell is a curious choice. He is a lawyer by training, and the first non-economist to head the Fed since G. William Miller took the post in 1978, served a disastrous year and then was named secretary of the Treasury. Powell is no neophyte in the financial and economic policymaking world, however. He served in the Treasury Department during the George H.W. Bush administration and then went on to a successful career in private equity before joining a think tank, the Bipartisan Policy Center, to offer advice on macroeconomic issues.
He joined the Federal Reserve as a governor in 2012, and has spent the five years since acquiring a reputation as collegial and a quick study. Colleagues note a readiness to dig into footnotes, a good sign for someone playing catchup among the economists on the Fed board and staff. He did not clash with Yellen on signature policies such as low interest rates although early in his tenure he did register some unease with the scale of quantitative easing.
If confirmed, he will have three important tasks when he takes the chair next year. First, he must prepare the Fed — and the economy — for the inevitable downturn. The U.S. economy has expanded steadily since the global financial crisis in the late 2000s, and after 101 months of growth, many experts expect an adjustment is on the horizon. Yet low interest rates, low inflation and the Fed’s massive holdings as a result of its easing policy means that the Fed has limited tools to respond. In this context, his background as a lawyer rather than an economist assumes greater importance.
Second, he must thread the needle on financial deregulation. While acknowledging the value and importance of scrutiny of financial institutions, and voting for some regulations since joining the Fed board, Powell has indicated some skepticism toward the full range of measures imposed in the wake of the global financial crisis. He is expected to take a measured approach, adjusting rather than abandoning the regulatory infrastructure created in those dark days. In speeches, he has called for protecting “core reforms” and he reiterated that position in remarks at the White House after being nominated. Many in the financial industry prefer that approach: They have taken measures to comply with new regulations and tearing them up now would disrupt their business plans.
The third task will demand personal, rather than economic, skills. Candidate Trump’s complaints about the politicization of the Fed are shared by many in the Republican Party. The critics are also alarmed by Powell’s readiness to accept both quantitative easing and financial regulations; they prefer a full repeal of both. Powell’s reputation as a consensus builder and his record of success in private equity will afford him considerable capital in negotiations with Congressional Republicans to preserve the Fed’s independence.
Trump will get to name three more Fed board members — or four, if Yellen gives up her seat when her term as chair ends next year. The president’s selection of Powell suggests that there is little reason to be concerned about those choices. Continuity, rather than chaos, is the hallmark of this decision by Trump. We hope it continues.