In my attempts to push TBOT to a video format, I am attaching this opener discussion that I recorded in Florence, Italy, relating to the nomination of our new “Lorenzo il Magnifico”
Attached below is a set of links and quotes from various sources I found on Jay Powell, President Trump’s nominee for Fed Chair, over the past few days.
What strikes me most was how little there was that was just overtly ‘bad’ about the man. Some of the criticisms of Powell as an individual (too rich, Republican, not a PhD) felt a bit contrived as I read them.
I’ll have a full piece on the matter within a day or so (though SA is quite backlogged at present, so a little patience is likely in order), but wanted to get this out as a reference for readers to help you potentially sort out some of your initial responses.
“Jerome Powell is a smart choice for Fed chair," said Richard Clarida, global strategic advisor at bond giant Pimco.
"He is likely to provide monetary policy continuity by adopting Yellen's framework of gradually normalizing rates and predictably reducing the Fed's balance sheet. He is also likely to be more receptive to calls for adjusting financial regulation prudently, especially for smaller banks.”
Powell has been part of the Fed's voting consensus since taking his seat, not once veering from the majority's position.
From Video: “Side by Side commentary (Yellen/Powell), couldn’t tell them apart. Regulatory regime is where the big changes come in.
John Silvia, chief economist for Wells Fargo, said the selection of Mr Powell was a bit of a "surprise", given the president's campaign criticism of the Fed's recent policies.
But it also reflected economic and political realities. "It's an easy transition, both in terms of doing the policy but also in terms of getting approval in hearings in front of Congress," Mr Silvia said. "Most people in the financial markets would feel a comfortable relationship with Governor Powell."
Powell is rated as neutral on monetary policy by the Bloomberg Intelligence Fed Spectrometer, compared to Yellen as somewhat dovish. He’ s never dissented as a governor, though no board member has done so since 2005. A survey of 30 economists in March found he was slightly more dovish than average Fed central bankers.
Powell had privately voiced skepticism of the third round of quantitative easing launched in 2012, but ended up voting for the initiative championed by then-Chairman Ben S. Bernanke.
In October, he said “there’ s a lot of room to address the burden” the Volcker Rule imposes on firms that aren’ t in proprietary trading. While he wants to preserve gains from post-crisis reforms, “We can do it more efficiently. That’ s the process we are actively engaged in right now.”
“Powell has established a reputation as a centrist on the monetary policy spectrum,” said Michelle Meyer, head of U.S. economics at Bank of America Corp.’ s investment-banking division. “Powell is a pragmatist when it comes to regulation.”
But the decision to tap Powell highlights how Trump is willing to compromise the bomb-throwing mentality that has characterized much of his time in Washington and many of his appointments. Powell has developed a reputation in Washington as a consensus builder who prefers to operate behind the scenes. Obama felt comfortable enough with Powell to nominate him to the Fed board in 2012, renominating him again in 2014.
“I never saw him lose his temper,” says Richard Fisher, the former president of the Federal Reserve Bank of Dallas, who sat next to Powell at many Fed meetings and had dinner with him from time to time. “Jay doesn't promote himself like so many do in Washington. He likes to do the unglamorous jobs.”
“He is not the kind of person who would exert himself immediately,” Fisher says, but “he has a market background, which is needed at the Fed.”
Powell is a lawyer, not a PhD economist like Yellen and the two prior holders of the post before her: Ben Bernanke and Alan Greenspan. But people who worked with Powell at the Fed say he has done everything he can in the past five years to learn the technical details of the Fed and macroeconomics.
They (many on the left) also see Powell as more likely to bow to the interests of big banks. Powell has defended some of the Fed's tighter oversight of the financial market but also pointed to areas where he thinks regulation may have run amok.
Despite his wealth, friends and former colleagues of Powell's describe him as “annoyingly normal.” He lives in Chevy Chase, Md., and often rides his bike about eight miles from home to the Fed. He doesn't drink much, plays golf and the guitar, and has an odd ability to repeat people's sentences backward to them, a quirk former colleagues say is a reminder of his smarts — and how closely he listens.
The secret of monetary policy is that, within a certain range, the Fed’ s key policy tool—setting the overnight interest rate that banks charge each other—may not actually matter that much to the economy. Obsessing about small rate changes is, thus, mostly for show. What matters more is what the Fed communicates to markets via rate changes, namely whether it is committed to its inflation target and has the authority to spur changes in the labor market. The ability to communicate effectively in this way requires credibility, making clear that the Fed will maintain its long-term goals even if it means some pain in the short term. Credibility is an argument for a chair with an academic background. Scholars of monetary policy have a firm sense of its limitations and a long track record of research people can study in order to understand their philosophy.
It’ s hard to predict what Powell’ s intellectual persuasion is, but he appears to be a consensus-builder rather than a domineering Greenspan type of chair. His monetary-policy preferences also seem to follow Yellen’ s, so his non-economist background may set him apart more clearly when it comes to bank regulation. (Or deregulation, as Trump would prefer.)
Trump nominee’ s reputation will be defined by how he unwinds stimulus and handles the next downturn
“Powell’ s nomination is not a surprise to the market and aside from a reappointment of Yellen is the least disruptive to the current status quo at the Fed board,” says Erin Browne, a fund manager at UBS Asset Management.
Lena Komileva at G+ Economics says “the most patient phase of the Fed policy normalisation cycle is behind us” should the economy maintain its recent strong employment growth and inflation starts to climb. “In a maturing economic recovery, as the Fed continues to unwind stimulus under a more laissez-faire-minded Fed leadership, virtually whoever surrounds new Chair Powell at the Fed’ s helm, this means a changing regime for the markets ahead,” she adds.
For now, investors anticipate the Fed will not quicken the current pace of unwinding projected for its balance sheet next year. Some even point to Mr Powell’ s experience on the Fed board during the “ Taper Tantrum” of 2013 — when Mr Bernanke sent Treasury yields sharply higher by signalling the end of QE — as reason why he may prove conservative in overseeing the retreat from the easy money era.
Indeed, people who know Mr Powell well say that he will be a consensus-building chair in the mould of his two immediate predecessors.
“He was in the markets and as a governor he’ s been studying hard. When you look at appointments post-1946 . . . there have been distinguished Fed chairs who have been economists and there have been undistinguished Fed chairs who have been economists,” Mr Reinhart says.
“For 2019 and beyond, a Powell Fed will have to decide about when and how to end the current tightening cycle — a crucial question left unresolved by the Yellen Fed,” notes Richard Clarida, global strategic adviser to Pimco.
The oddity of the Powell pick is that the very people most likely to praise Yellen’ s tenure at the Fed generally think he’s a decent choice.
The main difference is that lacking the strong academic background in monetary policy that both Yellen and Ben Bernanke shared, Powell seems somewhat more likely to be swayed by the views of others — most likely the professional staff at the Fed. But that, again, simply speaks to the likelihood that on a monetary policy level, Powell will continue on Yellen’ s course. To the extent that there are doubts about him, it’ s that he will offer a less sure hand in a potential crisis than Yellen would have and that replacing Yellen with someone whose views are so similar to hers underscores how foolish it is to not simply reappoint an incumbent who’ s doing a good job.
Powell’ s experience as an investment banker was critical in his carrying out the investigation and sanctioning of Salomon Brothers. Understanding the entirely different type of politics that exists in big banks will bode well for his capacity to regulate the banks. This attribute especially will dilute the power traditionally exerted by the NY Fed in recent years, a District that has a long history of conflicts of interest vis- à-vis the banks it regulates.
At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures.
Powell’ s work on Too Big to Fail banks also speaks to his ability to be independent and objective in his approach to regulating big banks with deep-pocketed lobbyists who hold huge sway over politicians. If he is willing to go up against the biggest banks, he will hopefully prove to be a leader cast in the mold of William McChesney Martin, the longest serving Fed Chairman famous for testifying to Congress that it was the Fed’ s job to take away the punch bowl just as the party gets going.
This piece is not intended as a standalone “article”, but rather as a reference for you as readers and as always, as a way to spur worthwhile discussion. Thank you for your engagement, and we look forward to your thoughts.