It is far from certain whether Jerome Powell, Trump’s pick to succeed Janet Yellen, will rise to the occasionby George Magnus / November 6, 2017 / Leave a comment
Would you appoint a sociologist to run a nuclear power station? Or an economist to the position of Lord Chief Justice? Clearly not, so, why has Donald Trump appointed a lawyer to run the Federal Reserve—the US and arguably the global—central bank, when Janet Yellen steps down next February? The choice matters because of America’s still commanding influence on global economic and financial affairs. Jerome, or Jay, Powell is not a bad choice for the Fed, but he is not who you’d want for the challenges that are almost certainly going to crop up in the next few years.
Who knows what drives President Trump’s choices? Yellen’s credentials and record made her a shoo-in for re-appointment. Perhaps Trump disapproved because she was an Obama appointee. Perhaps he and Treasury Secretary Steve Mnuchin wanted someone more amenable to the administration. In any event, Powell follows in the footsteps of G William Miller in the late 1970s—a non-economist appointed in preference to a sitting Chairperson.
The good news is that Powell has sat on the seven-person Federal Reserve Board since 2012. He has a background in investment banking and financial markets, and has worked at the Treasury. He has been a reliable ally of Yellen, never voted against her, and been a solid consensus type of a governor in the mold of both Yellen and her predecessor Ben Bernanke. He’s very likely a proverbial “safe pair of hands,” occupying the middle ground when it comes to the Fed’s principal functions at the current time, setting interest rates, unwinding over $4 trillion worth of assets that the Fed accumulated under the quantitative easing programme, and financial regulation.
All in all, Powell’s appointment seems uncontroversial and it is. But that could be the problem—for three reasons.
First, some Republican politicians may want to constrain the Fed, limit its autonomy or pressure it on financial deregulation. In recent decades, Alan Greenspan, Bernanke and Yellen have all turned out to be skilled central bankers as well as consummate political operators, relying on their deep economic expertise and reputation to fend off assaults on their positions and on the Fed. Powell will have to up his game to compete, especially when it comes to keeping at arm’s length some of the…