Trump Taps Jerome Powell to Chair Fed

Jerome Powell, Federal Reserve, Janet Yellen, Fed Chair, Donald Trump

Jerome Powell, Federal Reserve, Janet Yellen, Fed Chair, Donald TrumpThe president just announced his pick to chair the Federal Reserve  System. Subject to Senate confirmation, current Fed governor Jerome “Jay” Powell will succeed Janet Yellen as Fed chair in February 2018. Market reaction to this announcement has been sanguine, with commentators describing Powell as the "continuity candidate."

It is perhaps strange that Powell should be so-described, when Janet Yellen was still in the running for a second term until very recently. The point, though, is that Powell’s views are much closer to Yellen’s than the other candidates interviewed by the president — former Fed governor Kevin Warsh and Stanford economist John B. Taylor — either of whom might have heralded a departure from the status quo.

Powell is often characterized as a moderate dove or neutral on the path of interest rates. He is seen to mirror Chair Yellen in many respects, having supported every move made by the Fed since his appointment to the Fed Board in 2012. What’s more, Powell has already been confirmed by the Senate twice: once to complete Frederic Mishkin’s term as Fed governor, and again in 2014 for his own 14-year term. This fact surely wasn’t lost on an administration desperate for policy wins: a twice-confirmed Fed governor, who is a Republican, is likely to face the easiest confirmation process.

As chair, it is unlikely that Powell will make significant changes to the Fed’s normalization plan. The Fed has been painstakingly deliberate in communicating its intentions about interest rates and the balance sheet; Powell, who supports “forward guidance” as a policy tool, will not want to disrupt that. And with historically low volatility in financial markets right now, Powell won’t want to risk another “Taper Tantrum” that would mar the beginning of his tenure as Fed chair.

None of this means there won’t be any changes at the Fed once Powell is in charge. For one thing, Powell is skeptical about some post-crisis financial regulations. He testified recently that there is room for relaxing or even eliminating elements of newly-imposed regulations stemming from Dodd-Frank. Powell has been particularly outspoken on the need to exempt small banks from regulations designed to apply to large financial institutions. In private, Powell has also voiced concerns that even the most well-intentioned regulations can have unseen, adverse effects.

One worry about Powell is how he would handle a recession, or — even worse — another financial crisis. He is a lawyer by training and was a partner at private equity firm The Carlyle Group before coming to the Fed. Nevertheless, his former colleagues note that he devoted himself to learning macroeconomics and was quick to come to grips with the intricacies of monetary policy. Powell is also known to lean on the Fed’s staff for guidance — a detail that suggests he will lead by consensus.

That said, Powell has gone further than many of his colleagues on the subject of monetary policy rules. In a speech last February, Powell closed by discussing the usefulness of such rules. He highlighted the Cleveland Fed’s rules-based dashboard, and suggested it was the type of analytical tool the FOMC ought to use to guide monetary policy. In short, Powell sees value in using rules as benchmarks that can improve the analysis performed by the central bank. John Taylor, the father of the most famous monetary rule, has expressed support for such a strategy.

Powell ended that February speech by saying, “Policy should be systematic, but not automatic.”  If the Fed delivers on that promise under his leadership, it will be taking a step in the right direction.

  • joebhed

    The Fed's discussion of monetary policy begins at the end.The use of the levers available to achieve any semblance of improvement in the metrics of its economic policy objectives.
    Those being full employment (my term) and general price stability(also), which is in turn managed as our general price inflation rates on goods and services in certain important economic areas.

    Expanding employment will be associated with an increase in aggregate demand, which of course we cannot have due to the debt-overhang from our recent 'recovery'. LOL
    So, in dealing with a debt-overhung bout of national economic secular stagnation – per Dr. Summers, if 'fuller employment' becomes the driver of policy, then Chair Powell should be looking to remove the obstacles to increasing aggregate demand in the economy, one being the un-availability of incomes in the hands of consumers.

    Yeah, so after a couple of generations of not GAS about the incomes needed to achieve demand for production, any policy aimed at advancing production, save for losses to export, will be not successful and will contribute to a deepening imbalance that can only be improved by overt monetary finance of increased aggregate demand , as described in Adair Turner's book Between Debt and the Devil.

    We can't borrow our way out of this debt-saturated imbroglio.
    We need money to demand the goods that can be produced now.
    Overt Monetary Finance.

    I don't agree with Turner's methods for implementing OMF.
    But it's his baby.
    Discovered through Simons, Fisher and Friedman.

    But with a private central banker recipe that limits OMF's applicability and its effectiveness.
    The Simons-Fisher-Friedman public central banker option should occupy the policy discussion, if a little too dreary a prospect for incoming Chair Powell.

    • I'm still trying to figure out why, with a 4.2% unemployment rate and a record setting $6 million job openings, we are so concerned about achieving greater economic growth or price inflation, for that matter. Unless we open the border, eliminate the minimum wage, end welfare entitlements, promote child labor, prohibit staying home with the children, and force former government employees out of early retirement, who is going to do the work? And Trump wants a $1 trillion infrastructure plan. Again, where do we get the human resources? If 2% growth gets us to the lowest unemployment rate in modern times, what is wrong with that?

      • Ray Lopez

        Greater economic growth, if real, is good. I agree with you on inflation however. As for finding people to do work, that's not necessary, just use robots. I saw a remotely controlled tank robot the other day, fires a machine gun and is the size of a golf cart, looks promising and won't complain when it's shot at.

        • Robots are not as artificially intelligent as the hype would have you believe. Our understanding of AI is very limited, useful only in specialized applications, and subject to huge pitfalls and problems. Artificial General Intelligence (actual AI in past times) has not been shown to be imminent. Substantial breakthroughs must occur. Therefore, robotics are limited to needing human supervision and/or control and certainly require human labor to create.

      • joebhed

        I always love it when the conservative-libertarian wing of "Economics" hides behind the metrics that they admittedly despise – like the faltering unemployment 'rate', ……. having been revised repeatedly to make the metric sound like more of an economic accomplishment.

        We all know the true figure, and also THAT the millions of jobs created under Obama, and continuing under Trump, were over 90 percent part-time jobs, and have been less than the full time work that people need to pay their Bills. But you can hang out there if it works for you.

        Another joke – that Trump WANTS a $1 Trillion infrastructure plan when it is the Society of Civil Engineers that identifies a $6-7 Trillion national NEED to bring our infrastructure up to acknowledged public safety standards. Are you saying that would be inflationary? Certainly, the ramp-up to that achievement is a long way from being shovel-ready, but the commitment towards that infrastructure goal is good public policy. From whatever political angle.

        Finally, with regard the 'job' data not being informative, that which is relevant is 'incomes' – you know, the actual pay and earnings of workers of all kinds. So,why aren't all those workers advancing the economy? It's the income breakdown. More part-time jobs with less pay might be some Austrian dream, but for advancing the national economy – incomes must equal payments-due, or the standard of living will be, IS , in decline.

        So, if deflation or secular stagnation are acceptable national economic norms, hey, stay there, stand still and groove. If, however, stagnation R-NOT Us, then it is 'incomes' that need to advance along with the jobs, that consumption can be advanced in moving real goods production, and national economic metrics, like more jobs, forward.

        Turner's Overt MONEY Finance proposal provides some means for advancing aggregate demand today. It ain't about greater 'inflation'. It's about greater economic growth – without inflation.

  • Ray Lopez

    A lawyer is now Fed chair? Almost as bad as Benjamin Strong Jr., who I think had just a high-school education. And this: ". Nevertheless, his former colleagues note that he devoted himself to learning macroeconomics and was quick to come to grips with the intricacies of monetary policy" – lol! A self-taught lawyer is now Fed chair. Thankfully, money is short-term and long-term neutral, so none of this really matters.

    • oh, then what law will be now applied in economics?

    • There is one pitfall of university education – indoctrination.

  • Warren

    What are his views on electrum?