A Goldilocks economy perhaps warrants a Goldilocks Federal Reserve chairman. Jerome Powell fits the bill.
The former Carlyle partner served in the Treasury Department under President George H.W. Bush and was appointed as a central bank governor by President Barack Obama in 2012. Most notably, Powell isn’t as hawkish as other candidates on President Donald Trump’s shortlist to preside over the Fed.
Kevin Warsh, for example, appears to favor a more aggressive path for raising interest rates, partly because he thinks the Fed should set an inflation target of between 1 percent and 2 percent, which already has been reached, instead of the central bank’s 2 percent goal. Powell, by contrast, has sided with Chair Janet Yellen on hiking more slowly.
What’s more, Powell aligns with the White House’s deregulation efforts. He supports easing provisions of the Dodd-Frank reforms and has discussed ways to revise the Volcker Rule, which curbs Wall Street’s ability to make bets with the house’s money. Powell, who wants greater openness from regulators when it comes to the annual bank stress tests, also told Breakingviews in an interview on Tuesday that “it’s almost time” to release lenders from the qualitative portion of the exams that have tripped them up in the past.
Reappointing Yellen might be the safest pick to keep markets calm and Trump said he was considering her. But she would face opposition from some Senate Republicans who have demanded more Fed accountability and dislike her defense of Dodd-Frank. That also puts Yellen at odds with Trump, though he favors her dovish positions.
Meanwhile, Gary Cohn, the president’s top economic adviser, would be an easy target for Democrats given his tenure at Goldman Sachs, and his criticism of Trump’s response to a white supremacist rally didn’t help his cause. And Warsh, who was a Morgan Stanley banker and Fed governor, already faces a backlash from progressive politicians around the idea he’s trying to buy the nomination. His father-in-law, Ronald Lauder, has been lobbying for Warsh.
Other candidates seem like longer shots. An academic like Stanford University economist John Taylor hardly fits the Trump mold. John Allison, who used to run BB&T bank, has said the Fed should be abolished. In the end, Powell may be a Fed chair who is just right.