Federal Reserve transcripts released Friday for its monetary policy meetings in 2012 provide the first public glimpse of Trump nominee Jerome Powell's candid opinions about the management of the nation's money supply.
Powell, who is President Trump's choice to replace Janet Yellen as chair of the Fed, was appointed to the central bank's board of governors in May 2012 as it weighed new aggressive monetary policies in the face of a flagging economy.
The Fed releases the transcripts on a five-year lag to relieve its officials from feeling pressured to guard their language while debating monetary policy.
As one of the permanent voting members of the monetary policy committee, Powell in 2012 immediately began actively participating in the debate about how to respond to signs that the recovery could fail, even as the central bank maintained a zero percent interest rate target.
His comments at the meetings provide several takeaways:
1. Powell was more skeptical of major stimulus than were Chairman Ben Bernanke and others
Ultimately, Powell signed onto the major, open-ended program of buying Treasury securities and mortgage-backed securities that came to be referred to as “QE3."
But he was more cautious about the major asset purchases than Bernanke and others at the Fed were.
The bar for quantitative easing “is high and not yet met,” Powell said in August, as others made the case for a bond-purchase program.
He said he feared the risks that would come with expanding the Fed’s balance sheet, such as the possibilities that such a move could stoke inflation too much or inflate a financial bubble. He also voiced worries about the political consequences if the Fed began losing money through its purchases down the road.
When Bernanke and company moved to begin the bond-buying program in September, Powell signed on — but “with a certain lack of enthusiasm, and I am somewhat uncomfortable with the road that we are on.”
“We’re now using [quantitative easing] as a straightforward jobs program. There is no credible threat of deflation, recession, or financial crisis, any of which could present a compelling case for action and the use of all of our tools, including [bond purchases],” he warned.
At the time, the unemployment rate was near 8 percent. It has since fallen to 4.1 percent.
In December, Powell expressed fears that the market was beginning to expect a much bigger bond-buying program than he had planned for. He cited market expectations that the Fed could end up buying $1.2 trillion in bonds. “I’m not supportive of a program of that size,” he said.
Over time, the Fed expanded its balance sheet by more than $1.5 trillion before ending the program.
2. He listens to big business and hedge fund managers
Powell worked in finance between serving in the Treasury and joining the Fed, and he appeared to rely on the advice of investors and big business executives in his first year at the central bank. In discussing monetary policy, he cited anecdotes from executives, rather than academics, workers, union officials, or other groups, in explaining his view of the economy.
In September, he hinted that he expected U.S. economic growth to break out at some point in the years ahead, referring to private equity managers who were eagerly buying assets in the expectation that conditions would improve over a three- to five-year timeframe.
At the same time, though, Powell on multiple occasions expressed discomfort with the complicated “Fedspeak” employed by Fed officials in making monetary policy statements because it could only be understood by professionals tasked with deciphering the central bank. Instead, he favored language that ordinary people could understand.
“I do think this will be confusing to people who spend fewer than 50 hours a week working on monetary policy — that is, most of the public,” Powell said of one proposal in October.
3. Powell wanted some kind of resolution out of the 'fiscal cliff'
As House Republicans and former President Barack Obama hurtled toward a reckoning on taxes and spending in late 2012 over the so-called “fiscal cliff,” Powell suggested that he was interested in the two sides finding a deal.
The Fed “should both expect and welcome” prolonged negotiations over the levels of taxes and spending, he said at the Dec. 11-12 meeting. He speculated that one possibility would be for Congress to start a process aimed at overhauling the tax code and controlling entitlement spending.
“The last thing we need is a quick kick of the can down the road,” he said. “This stuff is very hard and very important, and if it’s not painful and messy, that’s probably a bad sign.”
Generally, in their public comments, Fed officials try to avoid commenting on the issues of the day pertaining to taxing and spending, because those are jobs that belong to Congress.