The Federal Reserve’s board governor Jerome Powell is expected to be Donald Trump’s pick for the Federal Reserve chair, replacing Janet Yellen. Though nothing will be made official until Thursday, November 2, White House sources, as reported by Politico and other news outlets, say that Powell is the likely nominee for the job.
Meanwhile, Janet Yellen seems to have been turned down, this despite being lauded for her efforts by the president. It is also going to be a break in the long-standing tradition of the chair being reappointed for a second term.
64-year-old Powell was appointed as a board governor by ex-President Barack Obama in 2012, and has been associated with the private equity industry for most of his professional career. Though he doesn’t have any formal monetary policy training, his background in finance and the fact that he’s a fast learner quickly brought him up to speed on interest rate policy and monetary theory.
Of note is the fact that Powell’s possible appointment was well-received by Wall Street, which sees him as a strong advocate for continuing the current interest rate policy. Current inflation rate still undershoots the central bank’s goal of 2%, but Powell is expected to keep the Fed’s course steady on gradual and cautious interest rate increases.
Powell is also being seen as less likely to be aggressive on interest rate hikes than other contenders like Kevin Warsh and John Taylor, and that’s validated by the fact that bond markets reacted favorably to the news of Powell’s possible appointment. Powell also formerly served as Assistant Secretary and Undersecretary of the Treasury under ex-President George W. Bush in the capacity of overseeing Treasury and banking markets.
According to Gennadiy Goldberg, an interest rate strategist at TD Securities in New York:
“You are getting a bull steepener, which suggests that the market is pricing in slightly fewer rate hikes, which would be consistent with Powell.”
Bull steepening is a term used to describe the phenomenon of shorter-term bond rates falling at a faster pace than longer-term yields, since the former are more sensitive to interest rate hikes.
Also of interest to financial markets is Powell’s openness to watering down Dodd-Frank financial regulations, which the Trump administration has been pushing to repeal. The House passed the bill in June this year, and there is reportedly some support from Democrats who believe the repeal will offer some regulatory relief to the banking industry.