Why You Should Know About Jerome Powell, Tapped as the Next Fed Chair

After much speculation, President Trump this month nominated Jerome H. Powell, 64, to be the next chairman of the Federal Reserve. Powell, nominated on Nov. 2,  is now next in line for what many consider the second-most-powerful position in the United States government, after the president himself.

If confirmed by the Senate, Powell will replace Janet L. Yellen, 71, who has been chairing the Fed for the last four years. Her term expires Feb 3. The appointment would make Yellen, who was the first female chairman of the federal bank, also the first serving Fed chair in nearly 40 years who was not reappointed by a new president for another term. The last time a first-term president removed the serving Federal Reserve chair was in 1978.

What does the chair do, anyway?

The Federal Reserve chair is the head of the Federal Reserve System, aka the central bank of the United States. The bank is in charge of things like conducting monetary policy in order to promote employment, keep inflation under control and moderate long-term interest rates — all of this in an effort to keep our financial system functional and stable.

Fed chairs serve four-year terms and are nominated by the president. If approved as chair, Powell will be in charge of carrying out the Fed mandate. The chair reports twice a year to Congress to testify on the Fed’s monetary policy and objectives. The chair also meets regularly with the Secretary of the Treasury Department, a member of the President’s cabinet. The chair’s actions influence employment, prices and interest rates.

Here’s another responsibility: The Fed chair is also the chair of the Federal Open Market Committee, which sets the federal funds rate. The funds rate is the benchmark interest rate for the nation, and when the funds rate rises, interest rates on short-term borrowing options like credit cards and personal loans tend to rise, too. For a complete primer on the fed funds rate and how it impacts your wallet, check out this explainer from our parent company, LendingTree.

For seven years following the 2008 financial crisis, the Fed held the funds rate  near zero to help curb inflation and encourage lending during the nation’s recovery. Then, in December 2015 the Fed raised the rate to between 0.25 and 0.50 percent. Since, the Fed has voted to raise interest rates four times as the economy has picked back up. The federal funds rate is now 1.25 percent, as Fed officials voted in June 2017 to again raise rates.

Who is Jerome H. Powell?

Jerome H. Powell is a current member of the Federal Reserve System’s Board of Governors. Powell, a Republican, was appointed to the position by former President Barack Obama, himself a Democrat, in 2012, and his current term was set to end in 2028.

Powell, though not an economist, has a rich background in financial markets. Prior to his appointment, Powell was a visiting scholar at the Bipartisan Policy Center in Washington, D.C. He also served in the George H.W. Bush administration as an assistant secretary and as under secretary of the Treasury.

Between his stints in Washington,  Powell led a career as a lawyer and investment banker in New York City. Powell served as a partner at The Carlyle Group from 1997 to 2005. He will be among the richest people to ever lead the central bank, according to The Washington Post.

According to The Wall Street Journal, White House officials say Trump chose Powell because he liked his combination of monetary policy acumen and business savvy. The president cited Powell’s “real-world perspective” as a positive trait, saying “he understands what it takes for our economy to grow.”

What we can expect from Powell as Fed chair

Powell is reported to be a centrist when it comes to monetary policy. Which is to say that as the next chair of the Federal Reserve System, hel is expected to stick to Yellen’s methodical approach to unwinding financial stimulus policies aimed at continuing recovery from the Great Recession.

Powell voted in favor of every policy decision made by the Board of Governors since he joined the Fed in May 2012. That includes all four federal funds rate increases. He also supported the Fed’s decision in June to begin reducing a $4.2 trillion balance sheet mainly consisting of U.S. Treasury and mortgage-backed securities purchased to lower long-term rates in recovery. Selling the securities takes money out of the market, driving down interest rates and inflation.

Investors expect Powell to keep the FOMC making quarter-percent raises through 2020. According to The New York Times, a survey of 144 investors conducted by Evercore ISI found investors expected that Powell would push rates modestly higher over time than Yellen. He is expected to conduct monetary policy so similarly, some are even referring to Powell as the ‘Republican Yellen.’

The one area where Powell may diverge from a Yellen-like monetary policy is in financial regulation.

The Fed is one of several federal agencies charged with regulating and supervising financial institutions. The Fed-enforced reforms in the wake of the Great Recession , often defended by Yellen, including new financial rules under the 2010 Dodd-Frank law.

“There is certainly a role for regulation, but regulation should always take into account the impact that it has on markets — a balance that must be constantly weighed. More regulation is not the best answer to every problem,” Powell said at an October meeting of the Fed-sponsored private-sector Treasury Market Practices Group.

Trump has stated several times that he he’s in favor of looser financial industry regulation, and the Trump administration further expressed the sentiment when it released plans calling for significant reductions in regulation in June. Just after the plans were released, Powell made clear he didn’t fully agree with the Trump administration’s plans at an appearance before the Senate Banking Committee, according to The Times.

Although Powell acknowledged there were some ideas he would not support, he said there were some ideas that would “enable us to reduce the cost of regulation without affecting safety and soundness.”

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New Trump Rules May Mean More Expensive Birth Control for Millions of Women

The Trump administration recently issued two new rules that may increase the cost of contraception for millions of American women. The issued rules allow more companies to opt out of an Obama-era mandate that companies offer insurance providing birth control for women. Now, any company can be exempted from the mandate on moral or religious grounds.

The rule went into effect on Oct. 6.

Previously, only religious employers like churches or nonprofit religious groups — like some schools or hospitals able to prove they have religious objections to providing contraception coverage — could opt out of the mandate.

The rules could affect the more than 62 million women who currently have access to no-cost birth control under the Affordable Care Act, according to Planned Parenthood. As of this writing, no appeals process was in place.

Since the health care law, a signature of the Obama White House, went into effect, out-of-pocket spending on prescription drugs has decreased dramatically. The majority of this decline (63%) can be tied to the drop in out-of-pocket expenses on the oral contraceptive pill for women, according to the Kaiser Family Foundation. After the mandate, more women have opted for more expensive, more effective, longer-lasting contraception options they otherwise wouldn’t be able to afford, like intrauterine devices (IUDs).

“It is going to be a significant problem for families around the country,” said Maggie Jo Buchanan, the Southern regional director for Young Invincibles, a nonprofit advocacy group for young adults.  “People will be living on pins and needles just trying to figure out what is covered under their plan.”

How many women could the new regulations affect?

In its announcement of the changes, cast as protections for Americans’ conscience rights,, the Trump administration claimed that most women — specifically, 99.9 percent of the 165 million women in the United States — would not be affected.

Some women’s rights advocates and legal experts have disputed that math.

“The claim that 99.9 percent of women won’t be affected is quite inaccurate,” said Erika Hanson, a women’s law and public policy fellow at the National Women’s Law Center, a nonprofit organization that advocates for women’s rights, as recent research suggests the regulations may affect health care costs for millions of women.

Now that any employer can opt out of coverage, American women on employer-provided health insurance plans are at a higher risk of losing no-cost contraception coverage. Kaiser Family Foundation has reported that roughly  57.5 million women — about 59% of women ages 19 to 64 — received their health coverage from their own or their spouse’s employer in 2015.

“We all agree that the First Amendment and freedom of religion is an important Constitutional protection in this country,” says Hanson. “But that right does not give one the ability to impose their religious beliefs on someone else, especially when someone else is going to be harmed as a result of your religious beliefs.”

At the moment, it’s difficult to determine exactly how many people will be affected by the new regulations. Since the Supreme Court’s 2014 ruling that closely held private companies could seek an exemption on religious grounds, only a few dozen companies have asked for exemptions, POLITICO found last year.

“We are hoping that companies worried about their bottom line will stand behind the birth control benefit and say, ‘We value our employees and are going to continue to provide this coverage,’” Hanson said.

How will I know if I am affected?

Since companies aren’t required to disclose to employees whether they have opted out, many women may not find out they are not longer covered until they get to the pharmacy counter.

“No companies or schools have dropped coverage yet. But also under the rule, we wouldn’t know” if they did, Hanson said. “They don’t have to do anything or tell anyone.”

12 Tips to lower your contraceptive costs

For those who are strapped for cash, losing no-cost contraception coverage may mean losing access to birth control altogether. Research shows that copays as modest as $6 may deter some women from purchasing contraception coverage.

Those affected by the rules will incur the costs of figuring out a way to afford birth control out of pocket.

Getting prescriptions directly from your doctor or OB-GYN may not be the most economical choice.  “If you can’t use your health insurance coverage, it’s typically very expensive to go to your normal primary care physician and get a birth control prescription,” says Hanson.

Here are some other suggestions:

Go to a low-cost clinic

Try going a federally qualified health center for more affordable services. Women can find one nearby through the Health Resources and Services Administration. The program is run by the HRSA, a subset of the Department of Health and Human Services, and offers services based on income, whether you have health insurance or not.

Go generic

Going with the generic brand of the birth control pill could help women save money. Generic brands usually cost less than the name-brand version, but use the same active ingredients. Women should ask their doctors about switching, however; some women may experience adverse side effects, or different effects than with the branded version.

Check here for a list of the name-brand contraceptive medications and generic versions.

Coupons can help

If someone is prescribed a more-expensive, name-brand drug, she may find savings through the use of coupons. Search online on websites like HelpRx or EasyDrugCard.com to find a coupon for contraception. Some brands, like Loestrin 24 Fe, offer discount cards. This product’s card — you can apply here —  can help you pay pay as little as $25 per one?month prescription fill or three?month prescription fill. You can also get discounts for Yasmin.

Speak with your doctor

Women may also save money by going to a physician or clinic that offers prescriptions on a sliding, income-based scale. Physicians can sometimes provide more affordable coverage if a patient speaks to them about their financial situation. The doctors may also allow  patients to bypass insurance and pay in cash.

Shop around

Women looking for savings can compare prices at different retailers to save money. Call around to check the price of your prescribed contraception at pharmacies in your area. You may be surprised at how much prices will vary, especially if you aren’t covered by insurance.

Try a long-term solution

Using a longer-term contraception method like the IUD may help women save money on contraception. The IUD may cost more upfront — between no cost and $1,300, according to Planned Parenthood — but women usually save more in the long-run an IUD lasts the longest compared with other methods. For example, the median price of the Mirena IUD, is effective for up to five years and is $1,111, according to the doctor-database site Amino. That would put the monthly cost over that time at about $18.52. Meanwhile, the birth control pill costs uninsured women up to $50 per month.

Source: Amino

Join a prescription savings club

Both insured and uninsured women may find significant savings by joining a prescription savings club like those offered through large national pharmacy chains like Walgreens, CVS or Rite Aid. Other companies, such as My Prescription Savings Card and Good Neighbor Pharmacy, offer savings programs consumers can use at various locally owned pharmacies or smaller pharmacy chains. There may be an enrollment or annual fee charged for a membership. Good Neighbor, for example, charges a $5 annual enrollment fee.

Use pretax dollars

If a consumer has a Flexible Savings Account or Health Savings Account through an employer, that means an ability to fund the account with pretax dollars and use it to pay for health-related expenses. This is a smart way to stretch funds.

Ask for three months’ worth of the Pill

You may be able to earn a discount if you purchase more of the Pill at once. You may pay the same copay if you ask for a 90-day prescription as opposed to a 30-day supply. This also saves consumers time, as it cuts back the number of trips they will need to make to the pharmacy.

Use the mail

Consumers can also save simply by ordering medication through the mail. If the insurer has a long-term prescription program, women may pay a lower copay if they choose to have a 90-day prescription mailed, as opposed to picking it up at a pharmacy.

Try enrolling in a government program

Several government programs provide free or subsidized contraception for low-income women, including Medicaid, Title X-funded centers and some state-funded programs. Women having a tough time affording contraception coverage should check to see if they qualify for enrollment in these programs, enabling them to receive low-cost or free contraception and other medical services.

Use condoms

If you’re not in a long-term relationship, don’t engage in intercourse with the opposite sex often or don’t need contraception for other medical issues, you may not need to pay for birth control pills or other forms of short-term contraception like the Depo Provera shot. Women in this situation can speak with a primary care physician about getting off the contraception they now use, in favor of condoms to minimize the risk of pregnancy.

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How a Trump Administration Plan to Privatize Students Loans Could Help

If reports are true, Trump's student loan plan may not be as bleak as it sounds ... so as long as the administration adds some key caveats.

Remember when you were a kid and your folks made you wait patiently before tearing into a pile of presents that were just beyond your reach? How you rubbed your hands together so quickly that your palms heated up and the skin-on-skin sound you made could be heard in the next room?

Well, imagine a bunch of blue-suited, white-shirted, red-tied, black-shoed lenders doing the same thing as they not-so-patiently wait for a new administration to divest some or all of the roughly $1 trillion of student loans that currently reside on the federal government’s books and supplant the Federal Direct student loan program with a modern-day version of the one that enriched them years ago.

According to a recent Wall Street Journal article, the banks and other lending institutions that were once the middlemen of choice for the government-guaranteed Federal Family Education Loan program have good reason to believe that the incoming Trump administration — in tandem with a Republican-controlled House and Senate —will move to resurrect what the Obama administration discontinued in 2010 because of cost. (The Trump transition team did not respond immediately to Credit.com’s request for comment on this possibility.)

When that happens — and in all likelihood it really is a matter of when more than if — we can expect a triumphant resurgence in the secondary financial markets as securitization after securitization of government-guaranteed education loans are flogged out to an investment community that’s clamoring for an opportunity to earn more than 1% on a virtually risk-free gambit. At the same time, though, we should also worry about what that portends for the tens of millions of financially distressed borrowers who may well find themselves at the mercy of loan administrators that are more concerned with the interests of their benefactors (the aforementioned investors) than they are them or the taxpayers who will be left holding the bag when they default.

An inescapably bleak scenario? Doesn’t have to be.

The simple truth is that trees don’t grow to the sky: The government’s balance sheet is not infinite. At some point, the Department of Education will have no choice but to rid itself of some portion of the Federal Direct loans it owns, not least because the nearly dollar-for-dollar amount of debt that the federal government incurs to fund that program has the potential to interfere with its other financing needs. But that doesn’t mean that education borrowers should be left to fend for themselves.

The incoming administration and its legislating compatriots can move to extract much-needed debtor and taxpayer-guarantor protections in exchange for the governmental backstop against default that will be necessary to move these debts into private hands.

It can, for instance, mandate specific loan servicing standards, such as those that require responses within a reasonable period, and prohibit servicers from moving financially distressed borrowers into temporary and expensive forbearances (because of the interest-compounding effect) instead of permanently modifying their contracts by extending loan durations. It can also prohibit any after-the-fact contractual changes, such as for prepayment penalties or requiring loan cosigners, in exchange for granting relief.

Better yet, given that roughly half of all student loans that are currently in repayment are either delinquent, in default, temporarily accommodated or participating in some form of income-based repayment plan, wouldn’t it make more sense to restructure the entire portfolio by extending the remaining terms for every contract before any of these are sold into the private marketplace?

The fundamental problem that plagues the modern-day student loan program is structural — too short a repayment duration for the high level of borrowing that’s currently taking place.

This needs to be addressed before Washington lets the financial services industry have its way at the party table.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Image: Bastiaan Slabbers

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How the Incoming Trump Administration Can Help Student Loan Borrowers

trump_student_loans

The 2016 presidential election is settled and a new administration will take office in two months’ time. Considering all that was said during this particularly contentious campaign, it’s no surprise that student loan borrowers are concerned about what that will mean to them beginning in 2017.

Two of the many items on my list of concerns have to do with the future of the Consumer Financial Protection Bureau, within the context of a potential repeal or overhaul of the Dodd-Frank legislation that created the consumer watchdog agency in the first place, and the Federal Direct Student Loan program, which the Obama administration established in 2010 as a successor to the simultaneously discontinued Federal Family Education Loan program.

The Possible Negatives

In the case of the CFPB, should Congress move to curtail the agency’s regulatory authority and/or impose more stringent oversight on its activities, I worry that less will be done to address loan-servicing-related problems, which include the misapplication of remittances on the part of private-sector administrators and their failure to promptly conduit financially distressed debtors into a government-sponsored payment relief program, or to prevent collection companies from pursuing past-due payments in a manner that violates the Fair Debt Collection Practices Act. (You can see how your student loan repayments are impacting your credit by checking your two free credit scores, updated every 14 days, on Credit.com.)

As for the Federal Direct Loan program, a financial services industry that benefited from virtually risk-free income courtesy of the government-guaranteed FFEL program is probably getting pretty excited about the potential for its reincarnation, now that smaller-government-minded lawmakers are in control of all three branches of our system. And not just for the new loans that will be taken out in the future.

A Fresh Approach

At present, roughly one trillion dollars’ worth of Federal Direct Loans are currently on the books, plus another $200 billion to $300 billion in legacy FFELs.

But if one were to tally together all the federally-backed loans that are at present delinquent and in default, plus all those that have been granted temporary forbearance and longer-term relief to date, and compare that total to the aggregate value of all the loans that are currently in repayment, that number would approach 50%.

Any loan portfolio that looks anything like that is one whose loan agreements were improperly structured at the outset. If we want these debts to be repaid anytime soon — without continuing to spend outrageous sums of money to accomplish that objective — the new administration would be wise to bite the bullet and restructure all these contracts over an extended term at a rate that properly reflects the federal government’s costs.

That’s the first step.

The second is to lock in that cost by financing the Federal Direct loans that currently reside on the education department’s balance sheet as any prudent private-sector lending institution would, instead of continuing the government’s potentially ruinous tact of borrowing short to lend long in a rising-interest-rate environment. The new financing can take the form of direct borrowing on the part of the federal government as it does now, or the education department can oversee the sale of these loans into the private sector while retaining administrative oversight of their servicing.

This stands in contrast to the old FFEL program, where private-sector lenders originated student loans backed by the federal government, and had the option to later sell these contracts into the secondary market for added profit. Not only did that program create significant remunerative opportunities at the expense of taxpayers (who would be called upon to make good on the government’s guarantees), but it also distanced the feds from directly overseeing the administration of the loans it backed.

In a nutshell, that’s the key reason why there’s been so much foot-dragging on the part of the companies that service the FFEL loans that are in repayment: the interests of the private-sector note holders and investors are at odds with those of the taxpayers.

Finally, the new administration would also be wise to address the matter of student loan dischargeability in bankruptcy. Not so that borrowers would have an easier time getting out from under the legitimate debts they incurred, but so the potential for abject loss at the point of default would inspire all lenders to negotiate in good faith with financially distressed debtors who, for the most part, truly desire to honor their obligations.

All of this boils down to having the courage to take an evenhanded approach to solving a trillion-dollar problem. Hopefully, this new administration has enough of that to go around.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Image: Bastiaan Slabbers

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