And the Winner is...

Welcome Jerome Powell

Donald Trump recently unveiled his nominee for Chairman of the Federal Reserve.  Pending Congressional approval, Jerome Powell will replace Janet Yellen as the next Chairman of the Federal Reserve… which is a pretty big deal.  Aside from the President himself, a strong argument could be made that the Chairman of the Federal Reserve is the second most influential job in the country.  Former Chair Ben Bernanke illustrated such by being named TIME Magazine’s Person of the Year in 2009.  He was also named the 6th most powerful person in the world by Forbes.  The Pope was Number 5.

The Fed

The Federal Reserve (Fed) is the central banking system in the USA.  Tasked with a “dual mandate”, the Fed has two primary goals:  pursue price stability and promote full employment.  It attempts to accomplish this by controlling interest rates, the money supply and bank regulation. The job requires delicate balance.  If the Fed makes too much money available too cheaply, inflation may increase; if it contracts the money supply or increases interest rates too high, it risks a slowdown with high unemployment.

Role of the Chairman

The Chairman of the Fed holds one of the twelve official votes that determine the direction of policies.  However, he or she exerts tremendous influence on the agenda by establishing which issues in the economy are worthy of discussion. 

The Federal Reserve system is designed to remain separate from politics.  After appointment, neither the President nor Congress can fire the Fed Chair.  The expectation is that the Fed will act in the best interest of the economy, rather than support the policies of any specific political party.  It doesn’t always work that way, as was the case in the early 1970s with Former Fed Chair Arthur Burns.  Many believe that Burns was instrumental in printing too much money for too long in an effort to stimulate the economy enough to get President Nixon re-elected.  The excessive money printing ultimately led to inflationary pressures in the late 1970s & early 1980s. 

Expectations from Trump’s Nominee

That brings us to today, and Trump’s decision to appoint Jerome Powell.  Most economists expect Powell’s approach to closely resemble that of current Fed Chair Janet Yellen.  During her term, interest rates have remained relatively low, and money has flowed freely, boosting the economy and the stock market.   

Sixty-four year old Powell has served as a board member for the Federal Reserve since 2012.  Prior to that, he held positions with various Wall Street investment banks, focusing on mergers and acquisitions.  He also worked for the US Treasury Department in the early 1990s.  The market didn’t respond heavily one way or the other to news of Trump’s nominee (which is encouraging).  Based on Powell’s appointment, our outlook for interest rates remains the same; we continue to expect interest rates to tick higher in a methodical way over the coming months. 

Time will tell more about Jerome Powell’s policies and outlook; in the meantime, he has suddenly become one of the most important men in the country.