President Donald Trump plans to nominate Federal Reserve Governor Jerome Powell to the top job at the U.S. central bank, according to three people familiar with the decision.
Trump, who has said he’ll announce his pick Thursday, would be choosing a former private-equity executive who favors continuing gradual interest-rate increases and sympathizes with White House calls to ease financial regulations. Powell declined to comment when approached by a reporter outside his Washington-area home. The Wall Street Journal earlier reported Trump has selected Powell.
Market reaction to that report was muted. The dollar briefly pared its gains, but still ended the day close to the level it was before the news and Treasuries maintained their advance. S&P 500 futures were little changed in Asian trading Thursday.
If approved by the Senate, the 64-year-old former Carlyle Group LP managing director and ex-Treasury undersecretary would succeed Fed Chair Janet Yellen, who has raised borrowing costs four times starting in late 2015 and just begun scaling back the central bank’s $4.5 trillion balance sheet.
“He represents a bit of the continuation of the status quo without being named Yellen,” said Gennadiy Goldberg, interest-rate strategist at TD Securities. “He’s relatively dovish-leaning on policy, but also willing to undertake some deregulation at the margin. He’s basically a perfect candidate for Trump.”
The decision would cap a months-long White House search that included consideration of re-nominating Yellen, or installing outsiders such as National Economic Council Director Gary Cohn, Stanford University economist John Taylor or former Fed Governor Kevin Warsh.
A Republican appointed to the Fed in 2012 by Democratic President Barack Obama, Powell has earned a reputation as a non-ideological and pragmatic policy maker. While he hasn’t played a prominent public role in formulating and explaining monetary policy, he has generally backed Yellen’s cautious approach to withdrawing stimulus.
Under Yellen, whose four-year term as chair expires Feb. 3, the Fed has overseen an economic expansion now in its ninth year and a fall in unemployment to a 16-year low. It would be up to Powell to keep that growth on track, under a president who has stated a preference for much faster gains in gross domestic product and continued low interest rates.
Powell was already the overwhelming favorite on betting websites after reports from a week ago said he would succeed Yellen. Traders have been increasingly pricing in his selection since then, bidding up Treasuries after yields reached the highest since March.
The ninth postwar leadership change at the Fed comes at a critical juncture — the transition to more normal monetary policy after a decade of unprecedented stimulus to minimize the damage from the financial crisis. It’s at this stage that policy mistakes will be made or avoided.
Raise rates too quickly and Powell risks stalling the third-longest U.S. expansion and hurting a stock market rally for which Trump often takes credit. Tighten too slowly and a hot economy might boost the cost of living, inflate asset bubbles and fuel investor doubts about the Fed’s inflation-fighting credibility.
Getting that balance right will require flexibility, independence from political pressure, and a deep understanding of how the economy and the American labor force are changing.
A law-school graduate, Powell will be the first Fed chair since Paul Volcker in the 1980s without a Ph.D. in economics. He’ll now have to work with the more than 300 Ph.D. economists at the Fed Board of Governors to decide how to respond to inflation that policy makers consider too low, and stock and other asset prices they view as lofty.
Since joining the central bank, Powell spearheaded the Fed’s response to the 2014 flash crash in Treasury debt and the overhaul of the flawed London Interbank Offered Rate benchmark. He’s also been the point person at the Fed’s Board for handling such unglamorous-yet-essential duties as oversight of the financial payments system.
Powell, who goes by Jay, served at the Treasury Department under President George H. W. Bush, eventually ending up as undersecretary for domestic finance. It was during his time at the Treasury in the early 1990s that he was among the policy makers who successfully headed off a market meltdown after Salomon Brothers tried to corner a Treasury debt auction using phony bids.
Powell spent much of his career outside of government working in the financial industry, first at investment bank Dillon Read & Co. and later at Carlyle, where he set up the private-equity firm’s industrial group. His 2016 financial disclosure listed assets of as much as $55 million.
“Jay was somebody who had experience in both business and in government and also had a legal background,” Carlyle co-founder David Rubenstein said in an interview earlier this year. “That’s a rare combination.”
In 2011, Powell played a key behind-the-scenes role in helping to avert a debt default by the U.S. government while he was working at the Bipartisan Policy Center think tank.
His work came to the attention of Obama, who later nominated him — along with Harvard University professor and Democrat Jeremy Stein — to the Fed board in a successful strategy to win the approval of the Republican-controlled Senate.
Considered a team player, Powell has generally kept any reservations he had about the Fed’s regulatory and monetary actions private. That led to criticism from some Republican
congressional staffers and banking industry executives that he was not forceful enough in resisting the raft of post-crisis financial rules.
When he was re-nominated by Obama in 2014 for a 14-year term as a Fed governor, 23 Republicans — including current Senate Banking Committee Chairman Michael Crapo — voted against Powell but came up short against Democrats’ then-majority. Although Republicans have since won control of the Senate, they are highly unlikely to turn down the pick of their own party’s president.
Former Fed officials said Powell did question the efficacy of some regulations, though his influence as a single member of the Fed’s board was limited. During a Senate hearing in June, Powell signaled that he’d support some changes to post-crisis financial rules but not a dismantling of them.
“First, we should protect the core elements of the reforms for our largest banking firms in capital regulation, stress testing, liquidity regulation, and resolvability,” he said. “Second, we should continue to tailor our requirements to the size, risk, and complexity of the firms subject to those requirements.”
Regulators “should assess whether we can adjust regulation in common-sense ways that will simplify rules and reduce unnecessary regulatory burden without compromising safety and soundness,” he continued.
On monetary policy, Powell has been similarly measured in his prescriptions for an economy that has struggled to hit full stride after the Great Recession. He privately voiced skepticism of the third round of quantitative easing launched in 2012, but ended up voting for the initiative championed by then-Chairman Ben S. Bernanke, according to Bernanke’s memoir published in 2015.
Since then, Powell has been supportive of Yellen’s initial go-slow approach to raising interest rates and her subsequent move to pick up the pace a bit.
In an Aug. 25 interview with CNBC television, Powell presaged subsequent comments by Yellen that the softness in inflation this year was a “mystery” and said the low price readings allowed the Fed to be patient in raising rates.
— With assistance by Jeanna Smialek, Agnel Philip, and Benjamin Purvis
Article by Rich Miller, Saleha Mohsin, and Elizabeth Dexheimer on Bloomberg