President Trump reportedly will nominate Federal Reserve governor Jerome Powell to be the next chairman of the Federal Reserve, opting for stability and continuity at the central bank, an institution whose performance could define his economic record.
In Powell, Trump would have a nominee with a Republican pedigree to replace Janet Yellen at the Fed’s top position but maintain the course that has yielded success in the brief time that Trump and Yellen have served in their respective roles together. Trump will nominate Powell as soon as this week, the New York Times and Politico reported Monday.
Trump was harshly critical of Yellen on the campaign trail, but he recently has praised her as the unemployment rate has dropped to the lowest level since the dot-com boom and the stock market has floated to new heights. Last week Trump lavished praise on the Obama holdover but said that “you’d like to make your own mark.”
With Powell, Trump would have the Yellen policies without Yellen herself.
Since joining the Federal Reserve’s Board of Governors in 2012, Powell has proved reliable to both former Chairman Ben Bernanke and Yellen. During his tenure, he never voted against either one in setting monetary policy or on implementing the post-crisis financial rules.
Others Trump considered for the job would have come to the job with an agenda. For example, his economic adviser, Gary Cohn, has prominently advocated for reducing the burden of some of the new regulations on banks. Stanford professor John Taylor, another finalist, has criticized the Fed for not raising interest rates more quickly and for decades has advocated that central banks should rely more on predictable rules in setting monetary policy.
Powell, in contrast, has defended the Fed’s rules-free approach to setting interest rates. “Policy should be systematic, but not automatic,” he said in a speech in February in New York.
Where Taylor has aided congressional Republicans in contemplating legislation to reform the Fed, Powell has served as a spokesman for the central bank in batting back such bills. In particular, he has tried to wave Republicans off the “audit the Fed” bill introduced by libertarian Sen. Rand Paul of Kentucky.
Powell does have a Republican pedigree as well as a Wall Street pedigree that might appeal to some of the more pro-business elements of the party. Former President Barack Obama nominated him as a governor in 2011 paired with a Democratic candidate, possibly with the intention of getting them approved as a package deal at a time when Republican senators were holding up other nominees.
Long before joining the Fed, Powell served as a Treasury undersecretary for finance under President George H.W. Bush. He then worked at the Carlyle Group, a private equity fund, and also at an investment bank.
In terms of regulating Wall Street, Powell might prove to be more accommodating than Yellen. This year he sketched out a program for lightening the regulatory load that, while not as ambitious as the Trump Treasury’s agenda, shared several key features with it. Treasury Secretary Steven Mnuchin reportedly strongly favored Powell for the Fed post.
Even bankers eager to shed some of the Obama-era rules, however, see wise management of monetary policy as the most important aspect of the Fed chairman’s job. A misstep in managing the money supply could cost the entire economy and doom businesses, as economists generally believe happened in the Great Depression and at other points in the Fed’s history.
On that score, public knowledge of Powell’s private views is limited by the fact that he has not been at the Fed long enough for any of the transcripts of the monetary policy committee’s private deliberations to become public. Nor did he comment on interest rates or the Fed’s recession-era emergency stimulus before joining the central bank.
Unlike the only other governor currently at the Fed who has served a significant amount of time with Yellen, Lael Brainard, Powell has never ventured any skepticism of Yellen’s leadership. In recent years, as the Fed has repeatedly fallen short of its own 2 percent target, Brainard has suggested at times that looser money, for longer, might be necessary to raise inflation and ensure that the recovery is as strong as it could be. In that way, even without issuing a dissent at any of the Fed’s meetings, Brainard tried to sway the Fed’s course. Powell has not done so.
Powell would have the luxury of taking the helm of the central bank at a time of low unemployment and low inflation and with the plan for reversing the crisis-era mass purchases of bonds already underway.