From Investor's Business Daily:
It will be Powell's Fed.
Assuming he's confirmed by the Senate, Jerome ("Jay") Powell will
become the 16th chairman of the Federal Reserve Board in early 2018.
Almost by definition, he instantly becomes the most important economic
policymaker in the world. But who is he? Outside economic circles,
hardly anyone knows.
So let's catch up.
Powell would be the first non-economist to head the Fed since the
disastrous appointment of G. William Miller by President Carter in 1978.
But parallels are strained. Even many economists don't believe academic
credentials are essential.
"Setting monetary policy (interest rates and credit conditions) in
most economic environments is pretty straightforward, and I don't think a
Ph.D. from an Ivy League school is needed," says economist Mark Zandi
of Moody's Analytics, who has a Ph.D. from the University of
Pennsylvania.
More to the point, Powell, a lawyer by training, has spent most of
his life steeped in financial markets. A Republican, he served as a top
Treasury Department official in the administration of George H.W. Bush.
After that, he joined the Carlyle Group, a major private equity firm,
from 1997 to 2005. President Obama nominated him for a spot on the Fed
Board of Governors, which he filled in 2012.
The Fed's immediate focus is how to sustain the economic recovery
without having low interest rates fuel inflation or financial
speculation. To defeat this problem, the Fed has been gradually raising
overnight interest rates since late 2015. Rates have gone from about
zero to their current range of 1% to 1.25%. In addition, the Fed is
reducing its massive holdings of bonds. This, too, would nudge rates
higher.
So far, the transition to higher interest rates — presided over by
Janet Yellen, the Fed's present chair — has gone smoothly. Powell has
consistently backed Yellen, suggesting much continuity.
Still, there are no guarantees. Interest-rate increases could backfire. Again, here's Zandi.
"Unemployment seems destined to fall below 4%, creating inflationary
wage and price pressures," he says. "Investors expect interest rates to
rise — but not nearly as much as Fed members do, and I suspect the Fed
will be right. Guiding investors' interest-rate expectations higher
without triggering a major sell-off in global stock, bond, and
commercial real estate markets will be tricky."...MORE
