Financial world awaits Trump’s announcement on Fed choice

In this Sunday, Oct. 15, 2017, file photo, U.S. Federal Reserve Chair Janet Yellen speaks during the G30 International Banking Seminar, at Inter-American Development Bank headquarters in Washington. On Wednesday, Nov. 1, 2017, the Federal Reserve releases its latest monetary policy statement after a two-day meeting. ( AP Photo/Jose Luis Magana, File)

WASHINGTON (AP) — After a search more public than any before in the Federal Reserve’s more than a century of history, President Donald Trump is prepared Thursday to name his choice to lead the Fed. All signs suggest that Trump’s pick is Jerome Powell, a member of the Fed’s board, to replace Janet Yellen when her term ends in February.

“I think you’ll be extremely impressed by this person,” Trump told reporters Wednesday.
An administration official, speaking on condition of anonymity, said this week that Powell was Trump’s leading choice. Trump had earlier indicated that his selection had come down to Powell, who has served on the Fed’s board since 2012, Yellen herself and John Taylor, a Stanford University economist.

If Trump does choose Powell, it would mean he had decided against offering a second term to Yellen, who has drawn widespread approval for her performance and is the first woman to lead the Fed. Powell, 64, is seen as a safe pick, someone who supported the cautious approach to interest rate hikes that Yellen has pursued in her nearly four years as chair and who would likely deviate little from it himself.

In Powell, Trump also has the chance to strike a middle ground between sticking with Yellen, a Democrat whom President Barack Obama chose as Fed chair, and Taylor, who was critical of the Fed’s response to the 2008 financial crisis and would have raised rates more aggressively than Yellen’s Fed has.

A lawyer by training, Powell amassed a fortune as an investment manager and would likely please Wall Street. He would also mark a turning of the page from Obama’s choice for the Fed post — something that holds appeal to Trump, who has made clear his desire to break sharply with the past administration.

In an interview last week, Trump alluded to his desire to put his own stamp on the Fed, saying of Yellen in an interview with the Fox Business Network: “You like to make your own mark, which is maybe one of the things she’s got a little bit against her, but I think she is terrific.”

A decision against nominating Yellen for a second four-year term would make her the first Fed leader since the end of World War II not to be offered a second term after completing a first. It would also break the pattern of the past three Fed chairs, who were first nominated by the president of one party and then re-nominated by the president of the opposing party.

On Wednesday, the Fed announced it was keeping its benchmark rate unchanged but hinted that it’s preparing to resume raising rates modestly in light of a consistently solid economy. In a statement after its latest policy meeting, the Fed left its key rate in a low range of 1 percent to 1.25 percent. It’s expected to raise rates for the third time this year when it next meets in December.

Though Powell would be the first Fed leader in nearly four decades to lack an advanced degree in economics, associates say he’s devoted much time since joining the board to schooling himself in monetary policy from the Fed’s stable of economists. He is well-liked inside the central bank and would be expected to bring a crucial ability to build consensus.
The Fed leader’s job is considered the government’s top economic policy post.

The chairman has only one vote on the Fed’s committee of board members and regional bank presidents who set interest rates. But the chairman’s position is critical to achieving consensus.

The central bank’s power derives from its ability to raise and lower the federal funds rate, the benchmark that banks use to set consumer and business loans. If the Fed succeeds in managing rates, it can achieve its two policy goals — maximum employment and stable inflation. If it errs, it can inadvertently trigger high inflation or an economic downturn. Under Yellen, the unemployment rate has reached a 16-year low of 4.2 percent. But inflation has remained chronically below the Fed’s 2 percent target.

Trump has conducted his search for a Fed leader in an unusually open manner, with reporters kept apprised of Trump’s string of interviews with the finalists. Besides Powell, Yellen and Taylor, they included Kevin Warsh, a former board member, and Gary Cohn, Trump’s top economic adviser.

During the weekslong search, Trump often publicly discussed the process in interviews. Recently, he asked a group of Republican senators for a show of hands on the person they favored. It was far different from the approach of past administrations, which held interviews and discussions privately, with few hints of who was being considered.

Though Powell’s stance on rates would likely deviate little from Yellen’s go-slow approach, he might be marginally more favorable toward easing some of the stricter financial rules that took effect after the 2008 financial crisis. Trump has complained that those rules have been too restrictive.

If Powell does prove more inclined to ease some regulations, he would have an ally on the board in Randal Quarles, a Trump nominee who has become the Fed’s first vice chairman for supervision — a position from which he can lead the effort to loosen regulations.
The seven-member board has three other vacancies, thereby providing Trump with additional ways to put his imprint on the central bank.