The Changing of the Guard

President Trump has nominated Jerome H. Powell to be Chairman of the Board of Governors of the Federal Reserve System, succeeding Janet Yellen when her term expires in February. The Federal Reserve Chairmanship is among the most powerful positions in the public sector (or, in fact, anywhere), due to its substantial influence over the US economy and, indeed, the fortunes of nations throughout the world. The Chair serves a four-year term and can then be reappointed. Contrary to the usual pattern, President Trump decided against nominating Janet Yellen for a second term, though he praised her efforts and results. This move was highly unusual, as the Chair is almost invariably reappointed by Presidents in their first term when the economy is doing well.

Jerome Powell has been a member of the Federal Reserve’s Board of Governors since May 2012 and was originally nominated by former President Obama. His background is somewhat unique for the position in that he’s a lawyer by training, rather than an economist. This certainly doesn’t mean that he isn’t fully prepared for the job, having obtained a wealth of experience and expertise since his college days and really digging in on the details since his original appointment to the Board.

In fact, Mr. Powell’s broad range of experiences will be valuable in his position as Chairman (assuming he is confirmed by the Senate). He graduated from Princeton and continued his studies at Georgetown University, where he received a Juris Doctor. He has worked as an attorney and spent about 18 years as a successful investment banker. He was also Assistant Secretary and Undersecretary of the Treasury under President George H.W. Bush, a role which involves being responsible for financial institution policies and the Treasury debt market, among other areas. In addition, Mr. Powell has been a visiting scholar at the Bipartisan Policy Center in Washington, D.C., focusing on federal and state fiscal issues. He has also served on corporate boards and the boards of charitable and educational institutions.

Another important characteristic Mr. Powell possesses is his ability to communicate. The Federal Reserve Chair’s every utterance is watched and analyzed, and a single phrase can literally make markets tremble (remember “irrational exuberance”?). He is also known as a consensus builder, which is an important attribute to have when trying to guide an entity as complex as the Federal Reserve. He is unlikely to dramatically alter the current course, which is another point in his favor since a major shift or uncertainty regarding Fed policy could do significant damage to the economy. He has been supportive of the gradual approach to normalizing monetary policy and the Federal Reserve balance sheet, which is the best option under current conditions.

In a statement he released upon his nomination, Mr. Powell noted that since the global financial crisis ended, the US economy has made substantial progress toward full recovery such as near full employment and inflation near the Fed’s target. He went on to point out that the US financial system is stronger and more resilient than it was before the crisis, with banks having higher capital and liquidity as well as a greater understanding of the risks they face. I certainly agree.

The changing of the guard is expected to be accomplished with a minimum of disruption, which is crucial in order to avoid introducing undesirable uncertainty or otherwise jeopardizing the forward progress of the economy. Current Chair Janet Yellen expressed her congratulations to Powell on his nomination, stating that his “long and distinguished career has been marked by dedicated public service and seriousness of purpose.” She also said that she is “committed to working with him to ensure a smooth transition.”

Janet Yellen navigated challenging waters as she guided normalization of Fed policy, and I think we can all agree that she did so quite successfully. I am confident that she will handle the coming changes with the same calm competence.

Jerome Powell represents a solid choice for Federal Reserve Chair. He is likely to continue the course which has been set, gradually increasing interest rates and unwinding asset positions to normalize the Fed’s balance sheet. His only significant departure from the past is a tendency to be supportive of less regulation. He may face challenges ranging from a downturn in the economy (since the current expansion is old by historical standards) to technology-driven changes in the payment system to the unknown elements of a sometimes chaotic world economy that is vulnerable to cyber threats and other disruptions. Jerome Powell is a steady hand for such times, is well up to the task, and would serve the nation well as Federal Reserve Chair.