Washington, DC, USA: President Donald Trump on Thursday nominated Fed Governor Jerome Powell, 64, to become the 16th Federal Reserve (Central Bank) Chairman. If Confirmed by the Senate, Mr. Powell will succeed Janet Yellen — the first woman to head the Fed — whose term expires in February. Yellen succeeded Ben Bernanke in 2014.
Jerome Powell’s nomination is the first time in nearly 40 years that a new President hasn’t asked an incumbent Fed Leader to stay.
Every president since Ronald Reagan who has had the opportunity to reappoint a Fed chair initially appointed by a president of the opposing party has done so. Reagan, a Republican, reappointed Paul Volcker, who was first appointed by Jimmy Carter, a Democrat. Bill Clinton, a Democrat, reappointed Alan Greenspan, who was initially appointed by Reagan. And Bernanke, who was first appointed by Republican George W. Bush, was reappointed by Barack Obama, a Democrat.
While it would be unusual for a former Fed chair, Yellen does have the option of remaining on the Federal Reserve Board. She would be filling out her 14-year governor’s term, which ends in 2024. Trump has made several comments indicating he likes Yellen and seriously considered reappointing her. But in a recent interview with Fox Business News, Trump said: “In one way I have to say, you like to make your own mark … which is maybe one of the things that she’s got a little bit against her.”
As a Fed governor, Powell has supported the policies of the Yellen Fed, which has only gradually raised official interest rates after leaving them near zero for seven years after the financial situation.
“If the economy performs about as expected, I would view it as appropriate to continue to gradually raise rates,” Powell said in a speech before the Economic Club of New York earlier this year. Most analysts expect him to move rates higher at about the same pace as Yellen.
On the bank regulatory front, Powell has been supportive of the Dodd-Frank reforms, though in recent remarks he has suggested there may be room for some streamlining. “Powell favors less regulatory burdens on banks” than Yellen, economist Mickey Levy of Berenberg Capital Markets says.
In remarks at a Fed-sponsored event in New York in early October, Powell said, “There is certainly a role for regulation.” But, he added, “more regulation is not the best answer to every problem.”
In his remarks at the White House on Thursday, Powell said the financial system is stronger than it was before the situation. “While post-situation improvements in regulation and supervision have helped us to achieve these gains, I will continue to work with my colleagues to ensure that the Federal Reserve remains vigilant and prepared to respond to changes in markets and evolving risks,” he said.
Powell is no stranger to Washington, D.C. He was born there in 1953 and has lived in the area most of his life. He was an undersecretary of the Treasury during the administration of President George H.W. Bush.
Prior to coming to the Fed, Powell was an investment banker. He was a partner at the highly successful, Washington-based private equity firm The Carlyle Group. As Fed chair, Powell would assume the position many describe as the second most powerful in the United States. That’s because with its ability to influence interest rates the Fed holds great sway over the U.S. economy, job creation and the rate of inflation.
Powell, a Republican, was nominated for his post as Fed governor in 2012 by President Barack Obama. Unlike recent Fed chairs, Powell is not a Ph.D. economist but a lawyer.
Mr. Powell’s most notable mark on monetary policy at the Fed was his involvement in bond-buying phase out. Worried that investors believed the programs would continue indefinitely, he joined with two other Fed governors, Betsy Duke and Jeremy Stein, to persuade Mr. Bernanke to scale the program back. The effort was typical of Mr. Powell’s style—conducted almost entirely behind the scenes and with little fanfare.
The initial effort was rocky. Bond investors grew frightened, sparking a selloff known in markets as the “taper tantrum.” But they eventually settled and the Fed is now gradually reducing its portfolio. Mr. Powell later conceded that his concerns about continuing the programs were overblown.
Unlike Ms. Yellen and Mr. Bernanke, Mr. Powell doesn’t hold a degree in economics—which would make him the first chairman since the late 1970s without such a credential. Although he has worked as an investor, lawyer and bank regulator, he has no experience leading a large organization.
Because Mr. Powell isn’t an economist, he might be more likely to rely on Fed economists and less likely to challenge conventional theory. Unlike some other Fed officials, he hasn’t expressed skepticism about the mainstream view, called the Phillips curve, that when unemployment dips below a particular level it will drive up wages and inflation.
The Fed is no simple bureaucracy. It has a seven-member board, 12 regional banks, a secretive decision-making process and 2,700 employees involved in interest-rate decisions, bank regulation and managing the nation’s currency circulation. It also serves as the Treasury’s fiscal agent in managing the nation’s debt.
It is in the process of raising short-term interest rates from near-zero levels and of gradually winding down a $4.2 trillion portfolio of mortgage and Treasury securities built up during and after the financial situation. Mr. Powell was part of a group in 2013 that pressed Mr. Bernanke to wind down the bond-purchase programs, although he has never dissented in 44 meetings on the Fed board.
The Fed is also a major banking regulator and has responsibility for monitoring financial stability. During the financial situation and the Great Recession, the Fed took extraordinary action, injecting trillions of dollars into the economy to stabilize the financial system. Its actions were widely credited with limiting the damage to the U.S. economy and avoiding a full-blown economic depression.