On Nov. 2, President Donald Trump nominated Federal Reserve Governor Jerome Powell to become the new Chairman of the Federal Reserve, replacing former chair Janet Yellen. Powell was first appointed to the Fed board in 2012 by former President Barack Obama.
Trump described Powell as an intelligent and committed leader who would “build on Yellen’s achievements in steering the U.S. economy after the recovery from the 2007-2009 financial crisis,” according to Reuters.
Powell seems to have similar ideas to Yellen regarding policy. Powell has worked with Yellen for the last five years, supporting her actions in monetary policy.
Both share a similar concern that weak inflation legitimized the Fed’s measured approach in raising interest rates in recent years. However, Powell has also called for the lessening or removal of some regulations imposed on banks as a result of the 2008 financial crisis which is what Trump wants.
It seems he will largely maintain the Fed’s status quo with some changes to be implemented in the future.
According to CNBC, he is “viewed as a convenient choice, someone who likely will continue the programs of the Yellen Fed but allow Trump a chance to put his own stamp on the central bank.”
Powell will take over for Yellen when her four-year term as Fed chair ends in February 2018. Powell’s nomination means that Yellen will be the first U.S. central bank chief not to serve for a second term since 1979.
Trump has praised Yellen in the past but he did not explain why he passed her up for nomination. Under Yellen’s guidance, the Fed has supervised an economy in its ninth year of economic growth and a 16-year-low in unemployment. Powell will have to maintain said growth and somehow appease a president who wants it to increase at a much faster rate.
The Fed chair change comes at a critical point when after almost a decade of unparalleled stimulus to mitigate economic damage from the financial crisis, the central bank will need to maneuver its way into more normal monetary policy.
Compared to his predecessors, Powell was not an economist but a former lawyer and investment banker.
Once he is confirmed, his two main goals will be to figure out how quickly interest rates should be raised and how to continue unwinding the Fed’s balance sheet.
The most important job of central bankers is to increase or decrease interest rates that are meant to promote job growth and keep inflation at a manageable level.
In line with Yellen’s actions, Powell will most likely continue to gradually increase interest rates if the economy continues to improve.
“The economy is as close to our assigned goals as it has been for many years,” said Powell in a June speech at the Economic Club of New York, according to CNN Money. “Risks to the forecast now seem more balanced than they have been for some time.”
Powell’s nomination to Fed Chair has not alarmed the finance industry as analysts do not expect the Fed to change much.
Powell will also have to oversee the Fed’s unwinding of some $4.5 trillion in investments on its balance sheet. After the financial crisis, the Fed purchased United States Department of the Treasury and mortgage-backed securities in an attempt to stimulate the economy. These investments were meant to reduce borrowing costs for people.
The Fed also reduced its benchmark interest rate to zero to encourage banks to lend more money to each other.
In September, it finally began to unwind those investments from over a decade ago and began raising the interest rate in December 2015. Powell voted in favor of winding down the Fed’s balance sheet in September, and similar to Yellen, he is open to the Fed making massive investment purchases in case of another crisis.
However, unlike Yellen, he has supported reducing some of the regulations currently imposed on banks including the Volcker Rule, which prevents banks from making risky investments with taxpayer money. Several top bank lobbying organizations lauded the decision by Trump to choose Powell for the role, most likely because of his desire to lessen regulations on banks.
According to CNN Money, Kenneth E. Bentsen Jr., the president and CEO of Securities Industry and Financial Markets Association, commended Powell as someone who would “give markets and investors great confidence” and provide a “steady hand.”
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