President Trump nominated Federal Reserve Governor Jerome Powell on Thursday as the next chairman of the central bank.
Powell is a Republican centrist who appears inclined to continue the Fed’s strategy of gradual interest rate hikes but may also be open to easing some regulations on banks.
Powell would represent a middle-ground pick for Trump, who is also considering current Democratic Fed Chair Janet Yellen as well as Stanford University economist John Taylor and former Fed governor Kevin Warsh. The latter two have supported sharper rate increases to ward off inflation and are favored by many Republicans in Congress.
Powell, 64, has consistently backed Yellen’s plan to lift rates slowly to head off a potential surge in inflation without disrupting an economic recovery that remains fragile by some measures. He also supports Yellen’s blueprint for gradually shrinking the Fed's $4.5 trillion asset portfolio over the next several years, an initiative that’s expected to gradually push up long-term rates.
Powell, however, has indicated he could be more receptive than Yellen to loosening some of the banking regulations adopted by the Fed since the 2008 financial crisis. Trump has suggested that higher capital requirements are discouraging more bank lending, for example.
If confirmed by the Senate, Powell would be the first Fed chairman in nearly 30 years not to have a PhD in economics. Powell, who joined the Fed’s board of governors in 2012 to fill an unexpired term, is a lawyer who served as assistant secretary and undersecretary of the Treasury under President George H.W. Bush and was a partner at The Carlyle Group, an investment firm.
Yellen, 71, would become the first Fed chief in nearly seven decades to serve a full term without being nominated for a second term. Presidents routinely have crossed party lines to maintain a steady hand on the economy’s rudder.
But Yellen has made an indelible mark on the Fed, becoming the first woman to lead a major central bank. She’s also credited with improving the Fed’s once-cryptic communication with the public, and deftly preparing Wall Street for the launch of gradual rate hikes in 2015 after seven years of near-zero rates during and after the Great Recession. In September, the Fed began winding down its portfolio of Treasury bonds and mortgage-backed securities.
Trump’s choice of the next Fed chief is vital for the economy because it affects interest rates, and thus monthly payments on mortgages and credit cards as well as savings account rates, among other loans and investments. A Fed leader also can maintain or derail an economic expansion by spearheading moves to lift rates too abruptly or too slowly. He or she can also minimize or lengthen a recession, depending on how effectively Fed policymakers adjust rates and other monetary policy levers.
