As Jerome Powell, Trump’s nominee for Chairman of the Federal Reserve, was sworn in on Monday, markets began to plunge. After briefly reaching a drop of 1500 points, the Dow Jones Industrial Average recovered to close the day down over 1100 points. Tuesday’s market maintained the volatility of overnight global markets, so Powell is not expected to respond to the loss unless markets worsen significantly in the coming days. But, over the course of his four-year term as chair of the Fed, Powell is expected to face numerous challenges.
So who is he?
Jerome Powell is a 64-year-old Washington native, educated at Princeton University and Georgetown Law School. After a clerkship and a brief stint at two New York law firms, Powell became an investment banker with Dillon, Read & Co. in 1984 before taking a job at the Treasury Department in 1990. In 1992, Powell became the Under Secretary of the Treasury for Domestic Finance after a nomination by then-President George H. W. Bush. Powell left government a year later, joining Bankers Trust in 1993 before returning to Dillon two years later. In 1995, Powell joined the Carlyle Group, where he later became Partner; the New York Times reports that Powell amassed a personal wealth of over $55 million during this period. In 2011, Barack Obama nominated Powell for an unexpired term on the Federal Reserve’s Board of Governors. In 2013 he was renominated and confirmed for a full term.
What happened to his predecessor?
With the expiration of her four-year term, President Trump decided not to renominate Janet Yellen, the first female head of the US central bank and an Obama appointee. Powell and Yellen demonstrated remarkably similar economic philosophies in their time at the Federal Reserve, voting together on every notable policy change during Yellen’s tenure. White House officials told the New York Times that President Trump was impressed with Powell’s combination of public and private sector experience and that he hopes Powell will continue to deliver the low interest rates of his predecessor.
What challenges is he expected to face?
The Dow has recovered from Monday’s dive, but the economy is expected to encounter some form of a recession in the coming months. Powell is expected to continue to raise interest rates if the economy continues to experience growth, but his expected policies are unclear should a more serious downturn occur. Powell is also expected to continue selling off Treasury assets bought by the bank during the 2008 recession. The President’s economic plan requires GDP growth over 3.5% to be deficit neutral, so Powell will be pressured to maintain a loose money supply for as long as possible.
Chairman Powell will also be required to chart a new course on inflation. Inflation has been consistently below the 2% target for the last few years, and economists worry that a meager inflation rate will leave the Fed without room to maneuver should the economy face a downturn. There are numerous proposed solutions to the problematic inflation level, including raising the target inflation rate, creating a target range, targeting price level instead of inflation, or simply targeting nominal GDP.
In short, Jerome Powell is not expected to change much at the Federal Reserve should the economy continue to develop as predicted. His leadership will be important in the coming years, but we should not expect anything radical.