The Trump administration has nominated Jerome (Jay) Powell as the next Chairman of the Federal Reserve, replacing Janet Yellen. This nomination came after months of speculation. President Trump reportedly drew his pick from a pool of five candidates, including former Fed Governor Kevin Warsh, current National Economic Council Director Gary Cohn, Stanford University economist John Taylor, incumbent Yellen, and Powell. Yellen’s term as the Fed Chairperson ends in February after serving one four-year term.
Powell, a Republican, served as a top Treasury official under George H.W. Bush and was a partner at the Carlyle Group. Having been named to the Fed’s Board of Governors in 2012, Powell is a current Fed Governor and temporarily took on oversight of large financial institutions after Daniel Taurallo’s departure this past April. Randal Quarles has now stepped into this role. Though Powell has a law degree, he would become one of the few individuals to lead the Fed without a strong background in economics. Yellen is the first chair not to be reappointed since 1979, when President Jimmy Carter replaced G. William Miller with Paul Volcker.
Powell is considered a strong consensus builder, which is a key characteristic for a properly functioning Fed and should help ensure a smooth transition. In a continuation of Yellen’s approach, he prefers a gradual policy normalization and has recommended a slow and steady reduction of the Fed’s balance sheet. In addition, Powell has shown a desire to reduce regulations and has been a strong proponent of easing banking regulations that came about after the financial crisis.
The Federal Reserve met yesterday and left short-term interest rates unchanged but signaled it would consider a rate hike before the end of the year, when it meets again in December. The market has largely priced in a December rate hike and the nomination of Powell. The administration has a number of vacancies to fill on the Fed’s Board of Governors, including the position of vice chairman.