The Federal Reserve moved closer into the orbit of President Donald Trump when the Senate approved Jerome Powell to be chairman of the central bank of United States of America. The vote was 85 to 12. Powell has been a quiet consensus-builder as a Fed governor since 2012, and Wall Street clearly hopes he will be a “continuity” chairman, extending the policy and approach of Fed Chairwoman Janet Yellen. During the confirmation process, Powell had been guarded and gave away little new. He said he expects interest rates to rise “somewhat further” and for the balance sheet to shrink over the next three or four years.
Some economists say there could be surprises when Powell’s view become clearer. “Fed Chair Powell, surrounded by a group of Trump-appointed, hard-money, free-market, strong-dollar Fed Board members, could act quite differently than Fed Governor Powell under Chair Yellen,” said Kevin Cummins, senior U.S. economist at NatWest Markets, in a note to clients. Powell’s term will begin after Feb. 3. Yellen will lead the Fed’s next rate-policy committee meeting next week. Powell, 64, was nominated by Trump in early November ending months of intense speculation.
He is the first non-economist to lead the Fed in 30 years. A lawyer by training, Powell got his first Washington experience at the Treasury Department under President George H.W. Bush. He then became a partner at the private-equity fund The Carlyle Group, amassing a sizable fortune estimated between $20 million and $55 million. It was Powell’s work after Carlyle, for $1 a year at the Bipartisan Policy Center, that got him noticed by the Obama White House.
Powell was the lead author of the center’s debt-ceiling analysis in July 201. The report supported President Barack Obama’s position that risks to the economy and the global financial system were “real” if Congress did not raise the debt limit. This led the administration to nominate Powell to the Fed. On the central bank’s governing body, Powell has been a centrist and a quiet team player. He was so quiet that pundits left him off the list of possible replacements for Yellen all of last summer when other names were bandied about. The first report naming him as a serious contender came in mid-October.
Wall Street generally thinks Powell will continue Yellen’s cautious approach to raising interest rates. But economists note that there are many vacancies to be filled at the central bank, and who Powell is surrounded by could matter in policy decisions. Democrats attacked Marvin Goodfriend, Trump’s latest nominee to join the Fed, at his confirmation hearing earlier Tuesday. Experts said there will be jockeying of Fed officials trying to see who can be “chief economist” of the Powell Fed.
“Powell will be reliant on other people in the room. The problem is we don’t know who those people will be,” said Michael Pearce, U.S. economist at Capital Economics. Fed officials have already started to air views about changing the Fed’s 2% inflation target. Some officials favor adopting a plan that would allow inflation to overshoot the target while others want a wider range of 1.5% to 2.5%. Powell, who is called “Jay” by colleagues and friends, is unfailingly polite and cool under pressure.
Last fall, with speculation swirling about who Trump might pick to lead the central bank, Powell appeared at a moderated discussion hosted by Reuters. The moderator didn’t waste time, using her first question to put Powell on the spot and ask him about his place in all of the speculation about who might lead the Fed. Powell replied: “I’ve got nothing on that for you today.”
