President Donald Trump ended months of reality show-style speculation by picking Federal Reserve Governor Jerome “Jay” Powell to lead the central bank, settling on a seasoned veteran for one of the world’s most important economic jobs and signaling there won’t be drastic changes at the Fed.
“We need strong, sound and steady leadership at the U.S. Federal Reserve,” Trump said in a Rose Garden event Thursday afternoon. “I have nominated Jay to be our next federal chairman, and it’s so important because he will provide exactly that type of leadership. He’s strong, he’s committed, he’s smart and if he is confirmed by the Senate, Jay will put his considerable talents and experience to work leading our nation’s independent central bank.”
Powell would replace Janet Yellen, an appointee of President Barack Obama and the first woman to head the central bank. In deciding to move on from Yellen, who presided over record stock market advances and gained trust on Wall Street, Trump broke from historic precedent in which new presidents typically renominate Fed chairs they inherited.
But Trump has made a habit of jettisoning anything associated with the Obama administration, and the Fed became no different. The president praised Yellen even as he was showing her the door, calling her “a wonderful woman who has done a terrific job.”
The choice is a pivotal decision for the president as the economy’s continuing momentum prompts the Fed to slowly begin pulling back from nearly a decade of extraordinary support for the markets. Trump on Thursday described it as “one of the most important institutions in our government. It is respected all around the world and is crucial to our economic prosperity.”
Powell is a Republican who worked in President George H.W. Bush’s Treasury Department and spent years in investment banking and private equity. Unlike Yellen, who became chair in 2014, he was trained as a lawyer rather than an economist, though he has worked in the financial world for most of his career.
Powell in his brief remarks, thanked the president. “I’m both honored and humbled by this opportunity to serve our great country,” he said. “If I am confirmed by the Senate I will do everything within my power to achieve our congressionally assigned goals of stable prices and maximum employment.”
Since he joined the Fed board in 2012, he has worked with Yellen, and her predecessor, Ben Bernanke, to craft the central bank’s monetary and regulatory policy in the wake of the 2008 financial crisis, the worst since the Great Depression.
Because of his close work with Yellen, many Senate Republicans will be disappointed that Trump did not settle on a more solidly conservative choice, such as Stanford economist John Taylor or former Fed governor Kevin Warsh. But Powell is expected to easily clear the 51-vote threshold for confirmation, with bipartisan support.
Powell secured a key endorsement after the announcement; Senate Banking Chairman Mike Crapo, who had previously voted against him, said on Bloomberg TV that he would support the nominee and would be ready to move him through the committee as soon as he received his paperwork.
Crapo said his previous “no” vote was “primarily a protest” against some Fed policies but was confident Powell would be willing to work with Congress.
On the other side of the aisle, Sen. Elizabeth Warren offered tepid support. The Massachusetts Democrat told Bloomberg TV she was disappointed that Yellen was not renominated. “Jerome Powell has been with her on a lot,” Warren said. “And that goes a long way with me.”
The Fed chair has enormous power to influence the economy by guiding decisions on interest rate policy that affect everything from credit card rates to home mortgages to the direction of global markets.
Powell would take the helm at at a time of significant transition in policy. After years of holding interest rates near zero and spurring the markets by buying trillions of dollars in Treasury bonds and bundled mortgages, the central bank is changing course as the economy shows signs of resilience. Since December 2015, it has raised its main borrowing rate four times and recently announced it will start to shrink its massive asset holdings. Another rate hike is expected next month.
Powell voted with Yellen on every one of those decisions, making him unlikely to seek sharp changes when he takes over the agency. Fed culture is built around consensus, which leads to both moderated policy decisions and substantial buy-in from the rest of the board on those decisions.
He praised Yellen today and said he would be dedicated to independence at the Fed. “Inside the Federal Reserve we understand that monetary policy decisions matter for American families,” he said. “I strongly share that sense of mission and I’m committed to making decisions with objectivity based on the best available evidence in the long-standing tradition of monetary policy independence.”
Senior administration officials told reporters that the president respects Powell’s “extensive business background” and “appreciates the value that brings to policymaking.”
“He’s not somebody who’s spent his entire career in government,” an official said. “He knows the impact of regulation and monetary policy on the larger economy in a real, direct way.”
In addition to Taylor and Warsh, Powell was picked for the top Fed job over National Economic Council Director Gary Cohn as well as Yellen, who came under withering attack by Trump during the campaign but then was under consideration by the president for renomination as he warmed up to her.
Cohn had been the frontrunner, but he angered Trump by criticizing the president’s comments about the violence in Charlottesville, Va. Warsh wanted the job, and his father-in-law, Ronald Lauder, has known Trump for five decades.
But Treasury Secretary Steven Mnuchin, who advised the president on the Fed search, pushed hard for Powell, having held discussions with him this year in drawing up recommendations to deregulate the financial system.
Powell, 64, made clear earlier this month that his priorities are aligned with those of the president, who has consistently called for sustained 3 percent GDP growth. The economy grew 3 percent in the third quarter after having expanded by 3.1 percent in the April-June quarter, its best performance since 2014.
“The biggest challenge we face as a country is to do what we can to increase the sustainable growth rate of the U.S. economy,” he said at an Oct. 3 event hosted by George Washington University Law School and Reuters. “Just another percentage point, for example, would make dramatic differences in people’s lives over time.”
Yet if hiking interest rates has the effect of slowing the economy’s expansion, that could lead to a clash with Trump, who has staked much of his presidency on accelerating growth and showed little reluctance to openly criticize the Fed on the campaign trail.
Still, Powell spent eight years as a partner at private equity firm Carlyle Group, giving him the private sector bona fides admired by Trump.
Before starting work at the Fed, he was a visiting scholar at the Bipartisan Policy Center, where he wrote about fiscal issues. Prior to that, he worked at the former investment bank Dillon, Read & Co. from 1984 to 1990. He also spent a few years at the prominent law firm Davis Polk & Wardwell and then briefly at Werbel & McMillen.
On monetary policy, he is viewed as having a more neutral stance on the Fed’s dual goals than strong “doves,” who are aggressive about combating unemployment, or “hawks” more focused on fighting inflation. Trump has said he would prefer interest rates to stay low, in line with Yellen’s Fed.
Whatever his views on monetary policy, Powell will have to bring the rest of the Fed’s top policy-making body along.
“He’s held in very high standing among the Federal Reserve Bank presidents, and I don’t just mean that as a technical point,” said John Dugan, a former Treasury colleague who now sits on Citigroup’s board. “Part of what you have to do is forge consensus” within the Federal Open Market Committee, which includes the 12 Reserve Bank presidents, five of whom have a vote on interest rate policy in any given year.
“He understands how the politics of monetary policy work,” Dugan added. “And he’s exceptionally good with numbers.”
Powell, a Washington, D.C., native, has already had a significant impact on the Fed under Trump. In April, he took over as the point man on bank regulation after the resignation of Fed Governor Daniel Tarullo. In that role, Powell has been nudging the central bank toward fewer and simpler rules on small and regional banks, as well as some changes that would benefit the largest lenders.
“There is certainly a role for regulation, but regulation should always take into account the impact that it has on markets — a balance that must be constantly weighed,” he said in an Oct. 5 speech. “More regulation is not the best answer to every problem.”
Still, Powell has said that capital requirements imposed on banks are now at proper levels, after the Fed aggressively raised those levels following the financial crisis. Banks, in contrast, have argued that capital requirements are higher than necessary and that they restrict lending.
The short-handed Fed board is supposed to have seven members but currently has four, leaving Powell with the task of running more than half of the central bank’s internal committees.
Ian Katz, an analyst with Capital Alpha Partners, said Powell’s outsized role this year in regulatory policy means he would probably have more of a hand in that area than some of the other candidates who had been considered for the Fed chair job. The Senate on Oct. 5 confirmed a former colleague and close friend of Powell’s, Randal Quarles, to the top regulatory position, making that type of collaboration even more natural.
“He wouldn’t be radical, but he is a bit more deregulation-minded than” Yellen, Katz said of Powell.