Six or seven years ago, I think it’s safe to say that nobody had Jerome Powell in mind as a likely future chair of the US Federal Reserve. But then again, six or seven years ago, nobody had Donald Trump in mind as a likely future president of the United States. But on Wednesday, the Wall Street Journal’s David Harrison reported that an unlikely president is set to announce the appointment of a new Fed chair whose candidacy has grown to seem increasingly inevitable in recent weeks. Republicans will like that Powell is a Republican, Democrats will like that he isn’t crazy or corrupt in some obvious way, and he’ll likely sail through the confirmation process.
The failure to reappoint Janet Yellen marks a break with what’s become a political norm of presidents reappointing competent Fed chairs they inherited from their predecessor.
That Yellen was the first woman to hold this post — and has been, for years, the most powerful woman in America — adds sting to her quasi-firing. What’s more, the economy has been performing well under her watch (as Trump himself likes to say), with growth healthy, inflation low, and the unemployment rate falling.
The good news is that as best as anyone can tell, Powell doesn’t have noteworthy disagreements with Yellen about macroeconomic management. The bad news is that he’s a considerably less distinguished thinker on monetary policy, with weaker chops to handle a crisis. He also seems to have more business-friendly instincts on financial regulation, which will put him in line with the Trump administration’s overall view that Barack Obama’s time in office was far too unkind to Wall Street.
Jerome Powell’s odd path to the top
Back in 2010, Senate Republicans filibustered the appointment of the exceptionally well-qualified economist Peter Diamond — a literal Nobel Prize winner — to a Fed Board of Governors seat. Richard Shelby, who spearheaded the opposition to Diamond, raised some substantive objections, but word on the Hill at the time was that Shelby was primarily exacting revenge for Democrats’ refusal to confirm two Fed nominees at the tail end of George W. Bush’s administration.
Obama sought, successfully, to break the logjam in 2011 by putting forward a bipartisan slate of nominees — Jeremy Stein, a Democrat, and Powell, a Republican.
Powell worked on Wall Street and worked on financial markets back in George H.W. Bush’s Treasury Department, so he was a reasonably well-qualified candidate. But what appears to have recommended him to the Obama administration is that in his capacity as a visiting scholar at the Bipartisan Policy Center, he’d emerged as a Republican validator for the view that failing to raise the statutory debt ceiling would be reckless and economically destructive. This was not a particularly noteworthy view on the merits, but he was a relatively rare voice of sanity at the time in a way that impressed the White House and helped him get the nod when they decided they needed a Republican name.
Continuity with change
The oddity of the Powell pick is that the very people most likely to praise Yellen’s tenure at the Fed generally think he’s a decent choice.
He’s made relatively few public pronouncements on monetary policy since joining the Federal Reserve Board of Governors, and the statements he has made don’t indicate any major disagreements with Yellen. Those who’ve spoken with him more privately don’t believe there’s any hidden agenda there.
The main difference is that lacking the strong academic background in monetary policy that both Yellen and Ben Bernanke shared, Powell seems somewhat more likely to be swayed by the views of others — most likely the professional staff at the Fed. But that, again, simply speaks to the likelihood that on a monetary policy level, Powell will continue on Yellen’s course. To the extent that there are doubts about him, it’s that he will offer a less sure hand in a potential crisis than Yellen would have and that replacing Yellen with someone whose views are so similar to hers underscores how foolish it is to not simply reappoint an incumbent who’s doing a good job.
One area where there probably is some difference is on bank regulation, where Yellen offers a somewhat skeptical alternative to the generally pro-business, bank-friendly outlook of the White House. Trump already installed Randy Quarles, a dedicated deregulator, as the Fed’s vice chair in charge of regulation. So it’s far from clear how much of a difference this will make in practice. But to the extent that it does make a difference, Trump will have in place a Wall Street Fed chair to go with his Wall Street Treasury secretary, Wall Street Council of Economic Advisers chair, and Wall Street slate of bank regulators. Still, given the overall deregulatory shape of the Trump administration, the specific differences between Yellen and Powell in this regard are unlikely to make a big practical difference.