The disrupter in chief decided to stay very much inside the box with one of his biggest economic appointments as President Trump confirmed Thursday that he was nominating Federal Reserve insider and monetary moderate Jerome Powell as the next chairman of the nation’s central bank.
In selecting the 64-year-old former Wall Street investment banker and top Treasury Department official in the George W. Bush administration, Mr. Trump declined to give Fed Chair Janet Yellen the customary second four-year term and rejected more provocative conservative choices who have been critical of the Fed’s easy-money policies and aggressive interventions in the economy since the start of the Great Recession in December 2007.
Expected to be easily confirmed, Mr. Powell will take over from Ms. Yellen the delicate task of unwinding the Fed’s bloated balance sheet and pushing up interest rates to historically “normal” levels, while not choking off a humming U.S. economy or clashing with Republican hopes on Capitol Hill for a stimulative tax cut whose details were released just hours before Mr. Trump revealed his choice.
Indeed, with consumer confidence at its highest level in 17 years, inflation and unemployment rates low, the stock market setting record highs, and the U.S. and most major international economies growing strongly, Mr. Powell’s biggest challenge when he takes over Feb. 3 could be not to mess up a good thing.
While effusively praising Ms. Yellen, Mr. Trump said in a Rose Garden ceremony that Mr. Powell “has proved to be a consensus-builder for the sound monetary and financial policy that he believes in. … Based on his record, I am confident that Jay has the wisdom and leadership to guide our economy.”
The low-key Mr. Powell also praised Ms. Yellen and her predecessor, Ben S. Bernanke, for steering the country through a decade of economic crisis. He said he was “honored and humbled” by his selection.
“If I am confirmed by the Senate, I will do everything within my power to achieve our congressional assigned goals of stable prices and maximum employment,” he said at a ceremony in which neither Mr. Trump nor Mr. Powell took questions from journalists.
Running the Fed in a time of surging economic activity doesn’t mean Mr. Powell can put the central bank on autopilot, said Deborah Lucas, a professor of finance at the Massachusetts Institute of Technology Sloan School of Management.
“The fact is it’s not yet ’business as usual’ at the Fed,” she said. “They still have a very inflated balance sheet, and it remains to be seen how fast they draw that down.”
Another Fed interest rate is widely expected in December, and Mr. Powell will be challenged to gauge the pace at which he brings U.S. monetary policy back to normalcy. With U.S. interest rates still so low, the Fed also will have few tools at its disposal if the economy hits some unexpected shoals.
“Powell has been dealt some cards in this poker game that aren’t helpful for carrying out monetary policy,” Torsten Slok, chief international economist at Deutsche Bank AG, told Bloomberg News. “The world economy has never been in better shape, but it is a very unthankful job to be a central banker these days.”
But Ward McCarthy, chief financial economist at the investment banking firm Jefferies, said Mr. Powell’s moderate monetary views and collegial manner are likely to reassure markets that a major shift is not in the cards for U.S. monetary policy.
“He’s boring, but he’s to the point,” Mr. McCarthy said on CNBC this week. “You don’t listen to him and scratch your head and wonder what he said.”
The Powell choice, added Bankrate.com senior economic analyst Mark Hamrick, suggests Mr. Trump “is opting for a nominee he can effectively call his own but isn’t so outside the mainstream that it rattles markets.”
But there were also early signs that conservative Fed critics were less than thrilled by Mr. Trump’s safe choice.
House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican who is retiring next year, said in a statement that, “if confirmed, it is my hope that Powell will break from the past and lead the Federal Reserve to adopt a more transparent and more predictable monetary policy strategy and rationalize a regulatory agenda that has seen big banks become even bigger while community banks have become fewer.”
One sign that investors aren’t expecting any seismic shifts: The Dow Jones index of industrial stocks traded within narrow range throughout the day, closing up just three-tenths of a percentage point.
Fed defender
Analysts and economists of all stripes said Mr. Powell, based on his record, would mark at best a small change in policy and tone from Ms. Yellen. He has consistently supported her during his time on the Fed board against charges that record low interest rates and the central bank’s extraordinary stimulative “quantitative easing” policies were setting up the currency and the U.S. economy for trouble in the long run.
Mr. Powell, a lawyer and not an economist by training, said the Federal Reserve had proved far more effective than central banks in Europe that pursued policies of fiscal austerity and tight money in response to the 2008 global financial meltdown.
“The evidence as of today is very strong that the Fed’s actions generally succeeded and are a major reason why the U.S. economy is now outperforming those of other advanced nations.”
Mr. Trump as a candidate had harsh word for Ms. Yellen’s stewardship of the Fed, accusing her of trying to help President Obama by pumping up a stock market “bubble” with low rates. But he was markedly more complimentary of Ms. Yellen after the election and praised the “excellent” job she had done even as he passed her over for a second term.
One potential policy shift for a Powell Fed — and one that may have swayed Mr. Trump — may reflect his more skeptical views of financial regulation ushered in by the Dodd-Frank law signed by Mr. Obama. The banking industry and many investors say the Dodd-Frank reforms went too far and are starting to choke off credit and drive people from serving on the boards of financial institutions.
“Some aspects of the new regulation are proving unnecessarily burdensome and should be better tailored to meet our objectives,” he said in a CNBC interview in April. “Some provisions may not be needed at all, given the broad scope of what we’ve put in place.”
A native of the District of Columbia and a resident of Chevy Chase, Maryland, Mr. Powell — who is known to friends as “Jay” — studied at Princeton University, then earned a law degree from Georgetown University and worked in investment banking at the Wall Street firm Dillon Read and Co. His reputation as a moderate and his warnings about the need to raise the federal borrowing limit during the 2011 budget crisis led Mr. Obama to nominate him to the Federal Reserve Board as part of a compromise package with a Democratic nominee.
When Mr. Obama nominated Mr. Powell in 2014 for a full 14-year term, nearly two dozen Senate Republicans voted against him on grounds that he had not been forceful enough in opposing Ms. Yellen’s monetary and regulatory policies.
A onetime partner at the Washington investment banking powerhouse the Carlyle Group, Mr. Powell will fulfill one criterion that Mr. Trump jokingly has said is mandatory in his top economic appointments: personal wealth.
“I want people that made a fortune because now they’re negotiating with you,” Mr. Trump said at a rally in Iowa last year a month before he took the presidency, defending the personal fortunes of such Cabinet appointees as Treasury Secretary Steven T. Mnuchin and Commerce Secretary Wilbur L. Ross Jr. “It’s not different than a great baseball player or a great golfer.”
With personal assets he listed in a 2016 disclosure firm valued at as much as $55 million, Mr. Powell would be the wealthiest chairman of the U.S. central bank in 60 years.
• David R. Sands can be reached at dsands@washingtontimes.com.
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