President Trump is expected to nominate Jerome Powell to replace Janet Yellen as Chairman of the Federal Reserve today. Powell is a current member of the Federal Reserve Board of Governors. He was appointed by Obama in 2012 and has kept a low profile. His speeches on monetary policy have hued closely to the company line. All indications are that Powell is a go-along to get-along member of the board. The Street views Powell as a continuity pick who is lighter on regulation than Yellen.
Powell is not an academic nor does he have a PhD in economics. A welcome change after suffering through the Bernanke and Yellen years, but unfortunately President Trump is going down the wrong path with Powell.
Trump may have been led astray by his Treasury Secretary, former Goldman alum Steve Mnuchin.
Powell is said to be the favorite of Mr. Mnuchin.
Why does Mr. Mnuchin favor a lawyer and former investment banker? He likely sees in Powell, somebody who
- will continue the ultra-loose monetary policy that has led to, as President Trump once said “a big bubble,”
- will bring a lighter touch to financial regulation, and
- can be pushed around by Mr. Mnuchin.
In other words, Mnuchin sees Powell as good politics for the Trump administration.
But while an inflating stock market may indeed be good politics in the short-run, it is the bursting of these asset price inflations that do the most lasting damage to the economy. Run-of-the-mill recessions caused when the Fed raises rates too high aren’t the problem.
No matter how good it may be for politics, we don’t need continuity at the Fed. We need wholesale change.
Jeremy Jones, CFA
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