Judging by his written testimony to his confirmation hearing in Washington overnight, you have to wonder if Donald Trump’s nominee for the chair of the US Federal Reserve is the right man – he’s offering more of the same as we saw with Janet Yellen.
In fact Power’s testimony – written and to the Senate overnight, Tuesday, Sydney time, reveals him to be a clone of Janet Yellen the departing Fed chair, with only a slight change.
It leads the cynic to conclude that Trump didn’t give Yellen a second term, as Obama gave the Republican appointee, Ben Bernanke a second term because she was an Obama appointment and a female – two areas of now established weakness for Trump’s partisanship.
So we can expect more interest rate increases under Powell, while the Fed will have to be flexible in responding to unexpected events – the baseline for the Yellen Fed and that of the central bank under ben Bernanke.
In his opening statement to the Senate Banking Committee Mr Powell vows to continue to support the economy’s “continued progress toward a full recovery” while pledging to defend the central bank’s independence and pursue its goals of maximum employment and price stability.
“We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink,” Mr Powell said.
“However while we endeavor to make the path of policy as predictable as possible, the future cannot be known with certainty.” Mr Powell’s testimony sends a message of continuity and stability rather than radical change, as expected for a policymaker who has been a centrist under Janet Yellen’s leadership. Some in the Republican Party and in the White House had wanted a radical to shake up the central bank. Powell’s nomination killed off those aspirations.
He has served on the Fed’s board since 2012 and is expected to see a relatively smooth path to confirmation. Ms Yellen’s term as chair expires in early February.
While he indicated an openness to further reducing the burden of financial regulations, but he made it clear he is not suggesting he wants to see a radical shift in direction from the broad thrust of the post-GFC crisis managing regime.
He pledged to consider “appropriate ways to ease regulatory burdens” on the financial sector, but added: “Our financial system is without doubt far stronger and more resilient than it was a decade ago.”
Therefore Mr Powell pledged to preserve core reforms including “strong levels of capital and liquidity, stress testing, and resolution planning”.
He adds that the Fed must preserve its ability to respond flexibly to unexpected developments. “We must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation’s financial stability and economic prosperity – the original motivation for the Federal Reserve’s founding,” he said.
Markets will be happy with that, some banks and brokers and other urgers on Wall Street won’t.
