Jerome Powell a “continuity candidate”, says Principal Global Investors 


Jante Yellen

Meet the new boss

“Two days after the actual Federal Open Market Committee (FOMC) meeting, President Trump officially nominated Jerome Powell to be the new Fed chair, replacing Janet Yellen when her term expires on February 3, 2018. A relatively smooth confirmation is expected. President Trump also has four Fed governor vacancies to fill, although it could only be three if Yellen serves the remainder of her term as governor, which expires in January of 2024; possible but unlikely.

“At age 64, Powell comes to the position of Fed chair with a law degree (the first Fed chair in over 30 years without a PhD in Economics) and a varied career in law, investment banking, and government.”

Continuity man

“Compared to the present Fed chair, Janet Yellen, Governor Powell is generally characterised as ‘like-minded’ on monetary policy and will likely maintain consistency and continuity in the pace and magnitude of federal funds policy rate increases. He has never cast a dissenting vote during his term as governor, although in September 2012 when then-Fed chairman Ben Bernanke announced QE3, Powell reportedly disagreed and pressed for a ‘clarification’ of the Fed’s goals, establishing what came to be called an ‘offramp’ or ‘unwind’ procedure for what proved to be the final phase of the purchase program. He then voted in favor of its implementation.

“His recent public comments on monetary policy are basically interchangeable with those of Janet Yellen. He is generally rated ‘neutral’ (neither dovish nor hawkish) compared to other members of the Fed Board of Governors. In a recent compilation, his projected federal funds rate at year-end 2018 was 2.13%, in line with seven other members, which was the largest group and included Yellen and Vice chair Bill Dudley. He is known as a ‘consensus builder’ and is reported to be well-liked and respected by colleagues and staff within the Fed.”

More open to de-regulation?

“We feel his leadership on monetary policy itself, is not likely to represent a structural shift over the medium-term; with a bit of caution: Jerome Powell the governor could be different than Jerome Powell the Fed chair. The area where he is most likely to be different is regulation.

“He feels that higher capital and liquidity requirements, along with more rigorous stress tests, have made the financial system safer and should be preserved for large banks. But, he also feels that the Volker rule should be re-written to exclude smaller banks.”

In other news, the Fed stayed put: “Amid the news on Powell, the FOMC met, and as expected, produced no change in policy. Aside from positive identity of the next Fed Chair, the main question was whether the FOMC would proceed with another policy rate boost prior to year-end. Of course, the Fed never allows this question to be answered directly, but the FOMC statement was upbeat enough about the growth outlook to guide the market to another rate hike in December. Futures traders after the meeting put an 87% likelihood on another 0.25% federal funds rate increase at the December FOMC meeting.”

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