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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