Trump Picks Federal Reserve Insider Jerome Powell To Be Its Chairman

Nov 2, 2017
Originally published on November 2, 2017 6:53 pm

President Trump on Thursday named Jerome Powell to be the next chair of the Federal Reserve, the first time in decades that a president hasn't reappointed a chief of the central bank for a second term.

If confirmed by the Senate, Powell, 64, will succeed Janet Yellen — the first woman to head the Fed — whose term expires in February. Powell, a current member of the Fed's board of governors, is expected to pursue policies largely in line with the gradual interest rate hikes of the Yellen-led Fed.

Trump said there's a need for "strong, sound and steady leadership at the Federal Reserve" and that Powell will "provide exactly that type of leadership."

Appearing with the president at the White House, Powell said he would work toward the Fed's goals of achieving stable prices and maximum employment.

Eric Lascelles, chief economist of RBC Global Asset Management, says Powell "has a similar monetary stance to the current chair [and] wouldn't raise rates very quickly."

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.

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.

The Fed is also a major banking regulator and has responsibility for monitoring financial stability. During the financial crisis 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.

Yellen succeeded Ben Bernanke in 2014. Trump's decision not to reappoint her to a second term is a departure from the nonpartisan approach of U.S. presidents during the past nearly four decades.

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 Network, 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 crisis.

"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 crisis. "While post-crisis 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.

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ARI SHAPIRO, HOST:

Today President Trump nominated Jerome Powell to lead the Federal Reserve. The president said Powell will provide the leadership needed to sustain the country's economic progress.

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PRESIDENT DONALD TRUMP: He will provide exactly that type of leadership. He's strong. He's committed. He's smart.

SHAPIRO: If confirmed by the Senate, which is widely expected, Powell will replace Janet Yellen. Her four-year term as chair of the Fed ends early next year. NPR's John Ydstie joins us now to discuss Powell and how he might affect Fed policy and the economy. Hi there, John.

JOHN YDSTIE, BYLINE: Hi, Ari.

SHAPIRO: So first tell us about who is this guy.

YDSTIE: Well, Powell is a current governor of the Federal Reserve - so someone who has sat at the policymaking table with Yellen during her time as chair. And here's what he had to say today after President Trump announced his nomination.

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JEROME POWELL: I'm both honored and humbled by this opportunity to serve our great country. If I am confirmed by the Senate, I will do everything within my power to achieve our congressionally assigned goals of stable prices and maximum employment.

YDSTIE: Powell is a Republican but was appointed by Barack Obama and has served on the Board of Governors since 2012. He's not a Ph.D. economist like recent Fed chairs. Powell was trained as a lawyer. Then he went to Wall Street and became an investment banker. He also served as undersecretary of the Treasury during the George H.W. Bush administration. He stayed in Washington - in the Washington area after that, where he was - he was actually born and raised here and became a partner in the very successful private equity firm the Carlyle Group. So he knows Washington.

SHAPIRO: It's a very important job. The Fed has the ability to adjust interest rates. That can affect economic growth, jobs. What is your sense? Is Powell likely to shake things up or keep the Fed on a steady course?

YDSTIE: I think he will keep Federal Reserve policy on its current course. He has voted with Yellen on every major monetary policy decision facing the Fed. He's clearly in favor of the gradual approach to raising interest rates and not convinced by some Republicans who've wanted faster rate hikes to avoid inflation. Here he is addressing those critics at the Economic Club of New York back in June.

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POWELL: The problems that some commentators predicted have not come to pass. Accommodative policy did not generate high inflation or excessive credit growth. Rather, it helped restore full employment and return inflation closer to the 2 percent goal.

YDSTIE: And he's clearly got that monotone Fed thing down.

(LAUGHTER)

SHAPIRO: Delivering crucial information in a way that might put some people to sleep, you're saying.

YDSTIE: Exactly.

SHAPIRO: Another important thing the Fed does is regulate the big banks. President Trump has talked about rolling back the major Dodd-Frank overhaul. Those regulations came after the financial crisis. Is Powell onboard for that plan?

YDSTIE: No, I don't think so - maybe some adjustments but not a major rollback. In an interview with CNBC back in June, Powell said that the post-crisis reform program has been mostly successful. And then he added this.

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POWELL: It's our obligation now to look back over it and ask, what aspects of it may be redundant or inefficient or utterly essential and should be protected down to every letter? But there are going to be some adjustments, and I think that's only appropriate.

SHAPIRO: So it sounds like the takeaway here is, though there may be a change in leadership - continuity in approach.

YDSTIE: Absolutely - continuity at the leadership level. But over the next year, Trump will have the opportunity to name several other Fed officials. And that could spark changes.

SHAPIRO: NPR's John Ydstie, thanks a lot.

YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.