No change at the Fed – certainly a rate rise at December’s two day meeting is now locked in – and tonight’s jobs report will underline that decision. And Donald Trump’s nomination of current Fed governor, Jerome Powell to replace Janet Yellen and adds weight to the continuity of policy from the Fed after he takes over from next February.
Powell needs to be approved by the Senate, but seeing he is one of the more rational of the President’s nominations, US analysts don’t see any overturning of the choice.
If that happens, Powell’s first policy meeting will be in March of next year, so standby for an upsurge in publicity (and ‘expert’ opinion about what will happen).
But as ever, it will pay to wait and watch to see if the tone of his commentary on the economy differs from that of Yellen, and if the tone of the post-meeting statements change in tenor over the rest of 2018 and into 2018.
Since becoming a Governor in 2012 (he was appointed by President Obama) Powell has been supportive of the Fed’s approach to monetary policy and is considered to be pragmatic and non-ideological and is likely to be a consensus builder as Chair.
He is not an economist – he is a private equity/banker and has interest in regulation of the banks and the financial system, an issue that is likely to come to the fore in the next couple of years with the Trump administration trying to ease what it claims is the regulatory burden on banks (and banks like JPMorgan Chase naturally claim this as well).
The AMP’s Chief Economist, Dr Shane Oliver wrote Friday that “Barring any significant shocks Powell is most unlikely to alter the Fed’s current path of letting its balance sheet run down in line with the process announced in September and raising rates three times next year.”
"So given Trump liked Yellen why did he even make the change? First, he wanted to leave his mark. Second, Powell appears supportive of taking a more relaxed approach to financial regulation than Yellen was,” Dr Oliver concluded.
In a statement Ms Yellen said “Jay’s (Powell) long and distinguished career has been marked by dedicated public service and seriousness of purpose. I am confident in his deep commitment to carrying out the vital public mission of the Federal Reserve. I am committed to working with him to ensure a smooth transition.
And in his own statement he praised for Ms Yellen and the previous Fed chair, Ben Bernanke, both of whom he served under.
"I have had the great privilege of serving under Chairman Bernanke and Chair Yellen, who guided the economy with insight and courage through difficult times while moving monetary policy toward greater transparency and predictability. Each of them embodies the highest ideals of public service–unquestioned integrity and unflinching commitment to fulfilling our mandate.
"Inside the Federal Reserve, we understand that monetary policy decisions matter for American families and communities. I strongly share that sense of mission and am committed to making decisions with objectivity and based on the best available evidence, in the longstanding tradition of monetary policy independence.”
The bottom line is – don’t expect any radical departure under Chairman Powell. certainly US financial markets took the news in their stride – partly because he has been the tip now for the past 10 days or more.
