What can we expect from Jerome Powell’s tenure as chair of the Fed?
There are three key things to watch out for from Powell’s first few months in charge: how closely he sticks to his predecessor’s roadmap, his plans for regulation, and whether he reveals an economic agenda of his own or sticks to the objectives assigned by congress.
Powell is expected to provide a degree of continuity as Fed chair, having voted with Yellen in every vote of her tenure. He has said that his Fed will:
- Continue to raise rates as the economy recovers, sticking with the target inflation rate of 2%
- Continue to reduce the Fed’s balance sheet, aiming to take it from $4.5 trillion to $2.5-3 trillion over the next three to four years by letting bonds expire
On top of that, Powell has stated that he intends to maintain the independence of the Fed from government and other parties, and will ensure that the Fed remains transparent and accountable.
Powell is expected to take a softer approach to financial regulation than his predecessor. While he supports many of the regulations outlined in the Obama-era Dodd-Frank Act – for example stress testing of banks – he has said that he wants to conduct a thorough review of the policies, particularly those that place a regulatory burden on smaller banks.
This puts him in middle ground between some Republicans (including Trump) who want significantly looser regulations, and Democrats who are calling for tighter rules.
Powell is the first Fed chair in more than 40 years to take office without a PhD in economics. Some Democrats have raised concerns that he could act in the interests of Wall Street (and the 1%) or bow to political pressure, given his lack of experience, significant personal wealth and Republican leanings.
However, in his first ‘Semiannual monetary policy report’ in February 2018, Powell promised his Fed would aim to achieve the objectives assigned by congress – namely maximum employment and price stability – by pursuing an inflation rate of 2%. If his actions in office reflect his words, it would likely confirm his economic agenda and go some way towards easing his critics’ fears.