What a Jerome Powell Fed could look like
Here are a few things to know about Jerome Powell, just nominated by President Donald Trump to replace Janet Yellen as head of the powerful Federal Reserve when her term ends in February.
He's a policy centrist likely to continue Yellen's cautious, pro-stimulus approach. He's set to be the first Fed chair in 40 years to not hold an economics PhD (he trained as a lawyer). He would be the richest central bank head ever, thanks to a successful career in investment banking and private equity. And he enjoys a modicum of bipartisan support.
A Republican, Powell was nominated by President Barack Obama and joined the Fed board in 2012, lobbied Tea Party Republicans in Congress to extend the debt ceiling and was confirmed despite some GOP worries he was too supportive of then-Fed Chair Ben Bernanke's stimulus focus.
His solid background doesn't mean has no critics, however. The team at Capital Economics calls Powell an "underwhelming choice" who may not be up to the task of navigating the "many difficult challenges" the Fed is likely to face over the next few years.
Powell's selection -- beating out other candidates like Stanford economist John Taylor, who has been vociferous critic of the Yellen Fed -- represents a turnabout for Trump. He was heavily critical of Yellen's low-rate stance on the campaign trail, but he now considers himself a "low-interest-rate person" and has praised Yellen's performance. The current Fed chair even made it to Trump's short list of finalists before he chose Powell.
In recent speeches, Powel has sounded a dovish note: He thinks an extended period of low interest rates is warranted (on the belief the financial crisis lowered the "natural" interest rate) as long as inflation remains tepid. He has also been critical of a "rules-based" approach to monetary policy. This approach is a "dog whistle" to those who believe the Fed's policies have gone too far and become unhinged.
Bank of America Merrill Lynch economist Michelle Meyers also expects Powell to support Trump's desire for an easing of post-crisis financial regulations -- a key point of differentiation with Yellen. In a June speech, Powell outlined such possible actions, reducing regulation for small and midsize banks, reassessing the "Volcker Rule" concerning proprietary trading at big banks and adjusting capital-at-risk levels.
They recommend watching for clarity on two key issues as Powell prepares to go before the Senate for confirmation: The eventual size of the Fed's balance sheet (currently a bloated $4 trillion-plus, up from less than $1 trillion before the recession) and the "neutral" rate of short-term interest rates, (currently estimated by the Fed to be 2.75 percent).
If he gets past that confirmation gauntlet, he'll surely face some far more difficult days.