Trump's surprisingly good choice for Fed chair
Picking Powell actually represents pretty significant pushback against Republican orthodoxy on monetary policy
President Trump is expected to nominate Jerome Powell today to be the next chair of the Federal Reserve.
Now, Trump is infamously unpredictable, so nothing is certain until he's said the words. But two sources in the administration tell Politico and The New York Times that Powell has the nomination locked down. Once he's gotten the official nod, he'll still have to be confirmed by the Senate. But observers don't think that will be an issue. After that, he'll officially take the position when the term for the current Fed chair, Janet Yellen, ends in February.
But assuming it all goes through, this is actually good news. Or, at minimum, it's the least bad news we could've reasonably expected. Picking Powell actually represents pretty significant pushback against Republican orthodoxy on monetary policy.
To begin with, Powell may be a Republican, but he was actually first nominated to the Fed's board of governors by President Obama in 2012, as part of a compromise with the congressional GOP. Before that, Powell had racked up a long career in private equity, served as a Treasury Department official under President George H.W. Bush, and did a stint at the Bipartisan Policy Center, a D.C. think tank. He's about as "safe" and nonideological a pick as they come.
Everyone also seems to agree that Powell's approach to interest rates will be almost indistinguishable from what Yellen would've done. "He's made relatively few public pronouncements on monetary policy since joining the Federal Reserve Board of Governors, and the statements he has made don't indicate any major disagreements with Yellen," Matt Yglesias summed up at Vox. "Those who've spoken with him more privately don't believe there's any hidden agenda there." A survey did find that investors expect Powell to push interest rates modestly higher than Yellen over the longterm, but that's it.
This is striking. The belief that interest rates should be considerably higher than what they are, and that the Fed was keeping them dangerously low under Yellen's guidance, is basically orthodoxy amongst congressional Republicans and the conservative base. Trump himself played to these attitudes during the campaign, accusing Yellen of risking bubbles, creating a sugar-high economy, and of playing political games with monetary policy. Of course, Trump also said the complete opposite, praising Yellen and saying he's a "low-interest rate person" himself, so it wasn't clear what he believed. When push came to shove, it seemed likely that GOP cohesion would win out and he'd nominate a monetary hawk like Kevin Warsh or John Taylor.
Picking Powell instead suggests Trump actually has some real commitment to lower interest rates. Political self-interest also probably played a role: Politico reported that Treasury officials argued that raising interest rates too high, too fast would dampen any economic boost from Trump's tax cut proposals. (The plan won't juice job creation regardless, but that's a separate matter.)
The other big question here is financial regulation. The Dodd-Frank Act gave the Federal Reserve considerable powers and responsibilities to police Wall Street and the big banks. And on this issue, Trump is much more in line with the deregulatory preferences of his party.
Yellen has been a vocal defender of tougher financial rules, and Powell certainly doesn't go that far. He's stated that some parts of Dodd-Frank are "unnecessarily burdensome." But at the same time, when asked by a Senate committee, he was pretty so-so about the Trump administration's own recommendations for rolling back that financial law. "I see it is a mixed bag," he said, adding that “there are some ideas in the report that make sense, maybe not as expressed there,” and "there are some ideas that I would not support.” Several Senate Republicans are not happy about that.
It's also worth noting that Trump has already successfully appointed Randal Quarles to the Fed's top regulatory spot, which matters much more for regulatory decisions than Fed chair.
Once Trump became president, it was all but certain that Fed policy was going to become worse. Shy of keeping Yellen in the position, Powell's nomination represents the least amount of damage Trump could do. If Powell is to Yellen's right on interest rates, he's barely to her right. As for regulation, he's clearly more conservative, but it's a difference unlikely to prove consequential. And he's extremely tame compared to the congressional GOP.
In fact, if Trump does nominate Powell, the biggest loss may be this: Yellen is the first woman to have ever held the position of Fed chair, and it's actually common practice for new presidents to renominate Fed chairs named by predecessors from the other party. Trump's preference for someone new seems mostly due to his desire to "leave a mark," and to snub Obama's legacy.
Recent allegations of sexual harassment and assault against Hollywood mogul Harvey Weinstein, veteran reporter Mark Halperin and, well, President Trump himself, have highlighted how much injustice women still face across American society. The economics world has not seen such a high-profile individual scandal yet, but a recent study made it pretty clear that condescending and toxic attitudes towards women are common in the profession. When it comes to these questions of institutional culture, who's at the top matters enormously. And Yellen's arrival at the pinnacle of the Fed was a major victory for women in the economics world.
By renominating her, Trump could've solidified the legacy of that advancement. Alas, both the perversities of our politics, and the demands of the president's ego, decided otherwise.