Powell – Neither Hawk, Nor Dove, But Wise Owl

The President appointed Jerome “Jay” Powell today to succeed Janet Yellen as Chairman of the Federal Reserve. We consider Powell a highly-qualified candidate who represents continuity, for the most part, with respect to the current trajectory of both monetary policy and financial deregulation. Accordingly, we do not anticipate a significant near term impact on financial markets as a result of his appointment. We expect confirmation in the Senate with minimal opposition some time in the fourth quarter.

Jay Powell, a Republican, was first appointed Fed Governor by President Obama to fill an unexpired position in 2012 and was reconfirmed in 2014 for a term that expires in 2028. Unlike Yellen and the majority of prior Fed Chairs, Powell is not an economist by training. He received a law degree from Georgetown in 1979 and spent the bulk of his career prior to joining the FOMC as either a banker, or a policy analyst focused on bank regulation and debt capital markets. Fresh out of law school Powell worked as an investment banker for Dillon Reade, before taking a position as Under Secretary for Finance in the George H W Bush Administration in 1990 where he played a key role in resolving the crisis at Salomon Brothers after it was found to be manipulating the Treasury market. Powell joined private equity firm Carlyle Group in 1997 before leaving for the Bipartisan Policy Center as a visiting scholar in 2005 where he focused on fiscal policy. Since joining the Fed in 2012, Powell has voted with the majority on every policy decision including the four rate hikes since 2015 as well as the decision to proceed with the current slow unwind of the Federal Reserve’s balance sheet. 

Under a Powell led Fed, we do not expect a change in the outlook for monetary policy which was outlined in their September 2017 meeting (the Federal Funds rate ending 2017 at 1.4% and ending 2018 at 2.1%). Furthermore, in their statement following yesterday’s meeting, the Fed reaffirmed their balance sheet reduction plan, allowing around $10 billion to roll off the balance sheet per month, growing to $50 billion over the next few years. 

On financial deregulation – a high priority of the Trump Administration – we also expect continuity. The Administration has provided a comprehensive blueprint of its objectives for financial deregulation that has received a lukewarm endorsement by Chair Yellen. Powell too has described the Administration’s blueprint as a “mixed bag”—a view perhaps influenced by his experience with Salomon Brothers in the 1990’s. 

We expect to learn more about Powell’s views on financial deregulation during his confirmation process but we see very little  in his background that suggests a fundamental disagreement with the Administration’s over-arching objectives for financial deregulation. Given his consensual and pragmatic approach, we expect Powell to work well with Randy Quarles, the newly appointed Vice Chair for Bank Supervision, to refine and improve the regulatory framework based on Dodd-Frank while maintaining its essential elements: robust standards for capital and liquidity.

1Bloomberg

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