Who is Jerome Powell?
By Diana Dittmer
With Jerome Powell succeeding Fed chairman Janet Yellen, Donald Trump initially decides to change direction and not change direction. But that does not mean that everything goes on as before.
Fed Chairman Janet Yellen does not get a second term. That’s for sure. If their contract expires in February of next year, Jerome Powell is likely to move up to the top of the US Federal Reserve for them. Donald Trump suggested the 64-year-old lawyer for the succession and let it behave with unusual caution for his circumstances.
Powell is considered a compromise. He was the least controversial candidate. Although he largely supports Yellen’s monetary policy, he is also considered a friend of less strict regulation of the financial markets and thus more market-friendly.
Essentially, Trump focuses on continuity and security. It’s a leadership change, not a change of direction. Powell has been a member of the Governing Council of the Federal Reserve since 2012. Since he represents a similar dove-like monetary policy approach as his incumbent predecessor, the former financial investor is likely to take the same approach as yellen in the current rate hike process.
Pigeons, in contrast to the hawks in monetary policy, operate an expansive monetary policy. With low interest rates and cheap money, the economy should be stimulated. Fears that Trump might make a blatant decision at this sensitive juncture, with the Fed cautious in its attempt to return to monetary normalcy, have not been confirmed. “Powell is not very likely to hit the drum,” said CNN expert Dylan Ratigan after the nomination. Investors in the US also saw the appointment of the longtime Fed Director for relaxation.
“The man of consensus”
Trump’s party will also be pleased with this decision. Politically Powell is close to the ruling Republicans, in the 1990s – under President George Bush – he worked for the Ministry of Finance. In addition, he is the prime candidate of Finance Minister Steven Mnuchin – from which observers theoretically derive a certain closeness between government and central bank. In his first brief speech after the nomination, Powell opposed such suspicions by emphasizing the independence of the central bank and its position.
“He will show the leadership we need,” Trump praised his candidate in a joint appearance in the Rose Garden of the White House. He is a “strong” and “smart” leader. There are few positions that are more important than those of the central bank chairman, the president continued. Powell has shown that he is a consensual man who can lead the economy through all challenges. “I hope the Senate will confirm it quickly.”
Much looks like business as usual. Powell should continue the work of Yellen calmly and gradually normalize the US Federal Reserve’s monetary policy. Still, it would be an exaggeration to argue that it makes no difference who leads the Federal Reserve, Yellen or Powell. What leadership Powell has, how strong it is, when the decision-making body is divided, will first have to show.
New boss, old course?
Critics complain that Powell lacks the academic background of his predecessors. Even though he has earned respect on Wall Street, he is not an economist but a lawyer. Also, the fact that he is not a big friend of a strict market regulation, as his predecessor, agrees with some observers cautious. If Powell brings the financial markets off the leash, it could well be dangerous again, warn observers.
First of all, it promises to be a quiet start for Powell. If he takes over the central bank in February, he is likely to find comparatively orderly monetary conditions.
But the challenges will come. The next recession could well come up in his four-year term. The International Monetary Fund sees the future of the US economy far less pink than the White House. How will Powell react? At least he does not yet trust him to be a monetary magician. Another challenge could be the collapse of stock market prices. The US stock markets are currently booming, mainly due to monetary policy and expectations of the promised by Trump deregulation and tax policy.
As tame as Trump’s decision for Powell may be as Fed chairman, so far the US president was more likely to make rash decisions and negative surprises. It should not be easy for the new man at the head of the Fed.