The Federal Reserve moves markets. It’s inarguably the most important central banking system in the world. Lenders, banks, and financial institutions from every end of the globe follow the actions of the Fed. Therefore, any potential uncertainty in, or disruption of this institution commands the undivided attention of global investors.
And Markets are breathing a sigh of relief today. Reports emerged that Trump nominating current Federal Reserve Board of Governors member Jerome Powell to serve as the next Chairman. Powell’s nomination snubs a tradition. That is, of reinstating the incumbent Federal Reserve Chair for a second term. This particularly when the current chair, Janet Yellen, presides over a healthy economy and is actively seeking the nomination.
However, markets reacted well to the news. Powell is a former investment banker and private-equity executive. Investors see him as perhaps the most centrist of Trump’s potential nominees. He’s certainly no threat to Wall Street.
Who is Jerome Powell?
Powell is markedly different from most past Fed chairs in a couple ways. Unlike the past three chairs, Powell does not hold a PhD in economics. But his peers deem him well-studied and capable despite a lack of formal monetary policy training. Secondly, Powell will be the wealthiest chairman since 1948. He studied at Princeton before attending Georgetown Law. Powell began practicing law privately in 1981 at Davis Polk & Wardwell. In 1983 he moved to Werbel & McMillen.
After leaving Werbel, Powell began his investment banking career at Dillon, Read & Co.. At DRC, Powell spent six years focusing on financing and mergers and acquisitions. In 1990, Powell temporarily transitioned to the public sector and worked at the Department of the Treasury. 1992, he was nominated Under Secretary of the Treasury for Domestic Finance by George Bush Sr..
In 1997, he became a partner at the Carlyle Group. The Carlyle Group is a prominent, Washington-based, private-equity giant known for its revolving door within elite U.S. political circles. Later, Powell worked at the Global Environment Fund, a venture capital firm focused on investments in sustainable energy. In 2010, he joined the Bipartisan Policy Center as a visiting scholar.
What to Expect For the Fed Seat
Powell was nominated to the Federal Reserve Board of Governors by Barack Obama; yet Powell is a registered Republican. As a result, he enjoys a degree of bipartisan appeal. So Powell is largely seen as a moderate in terms of monetary policy. During his time at the Bipartisan Policy Center in 2011, Powell lobbied Republicans in Congress to raise the debt ceiling. He advocated against a government shutdown, citing the risks and fiscal implications of defaulting on our debt.
Powell enjoys a reputation as a fiscally responsible centrist who can appeal to the senses of both Democrats and Republicans. Powell has been said to support a slightly tighter monetary policy approach than his colleagues at the Fed. With that said, he will likely adopt interest rate policies similar to Yellen’s. He comes from a financial and legal background, making him a comfortable pick for Wall Street.
THE BOTTOM LINE
Powell is largely a supporter Dodd-Frank policies concerning market oversight. Do you sense the but coming? Well, Powell has suggested reform in some areas. Although housing reform is not officially under the Fed’s jurisdiction, expect Powell to push for it. It’s an issue he has researched and spoken about in the past.
He suggests creating a buffer of private capital between the housing credit market and taxpayers. This is much like Dodd-Frank did for banking reform. He believes TBTF (Too Big To Fail) is a problem that addressed banks but failed to address the housing market. Sure, mortgage lending has seen progress in terms of consumer protection; but its macroeconomic risk and burden on taxpayers have yet to be sufficiently addressed.
Powell doesn’t fit the traditional mold of a Federal Reserve Chairman. But Powell is one of Trump’s safer appointments. He will likely head the Fed with an air of shrewdness and predictability. This hopefully should keep congressmen, markets, and economists comfortable.
In case you missed it… Check out our recent post about the G20 and if global leaders (and investors) are chasing an elusive dream
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