Updated 7:58pm ET November 2, 2017
Jerome Powell Gets Nod for Fed Chair
The word "continuity" is defined as the unbroken and consistent existence or operation of something over a period of time. It is a word that is going to be heard a lot in the coming weeks now that President Trump has nominated Jerome Powell to be Chairman of the Federal Reserve Board of Governors.
Mr. Powell is the "continuity nominee," having served on the Board of Governors with former Fed Chair Ben Bernanke and current Fed Chair Janet Yellen.
Mr. Powell has also been referred to as the "safe choice" for President Trump since it is thought Mr. Powell's policy views are consistent with Ms. Yellen's, which is to say he favors a gradual pace of interest rate increases and a gradual normalization of the Federal Reserve's balance sheet.
Mr. Powell is also familiar to market participants since he has served on the Board of Governors since 2012 and hasn't dissented with any of the Federal Reserve's policy decisions during his tenure.
In naming Mr. Powell as his nominee, the president praised him for being a strong, committed, and smart person who received strong bipartisan support in the Senate for his prior appointment to the Board of Governors.
The latter is another reason why he is regarded to be the "safe choice" as he is unlikely to face any credible opposition during the confirmation process. That should ensure that Mr. Powell is ready to fill the Fed chair seat when Ms. Yellen's term as Fed chair ends on February 3, 2018.
Interestingly, while Ms. Yellen will cede the Fed chair position to Mr. Powell, she doesn't necessarily have to leave the Federal Reserve. Her term on the Board of Governors does not expire until January 31, 2024.
Ms. Yellen could stay, although it is assumed by Fed watchers that she will ultimately tender her resignation from the Board of Governors. If she does, the president will have four seats to fill on the Board of Governors.
The most important seat, however, was filled today with the nomination of the Fed chair. The president captured the weight of that position by acknowledging that there are few more important positions than the Fed chair.
In his acceptance speech, Mr. Powell praised the work of his predecessors, Ben Bernanke and Janet Yellen, offering a tacit cue that he will likely be a bridge of continuity between the past and the future.
No one of course can tell the future. Circumstances could change that necessitate a more aggressive tightening stance from the Federal Reserve or perhaps some increased accommodation.
The market, however, is comfortable with the status quo and has no reason at this juncture to think Mr. Powell will be quick to abandon his centrist position that has earned him some praise within the Federal Reserve for being a consensus builder.
The president's nomination of Jerome Powell to be Chairman of the Federal Reserve Board of Governors is a big decision that can only be judged properly in hindsight. The market doesn't like surprises, so that decision is off to a good start.
All else equal, the market would have preferred total status quo in the reappointment of Janet Yellen. Knowing that didn't happen, though, it is undoubtedly content to know at this juncture that continuity is the good word -- and Jerome Powell is thy name.
--Patrick J. O'Hare, Briefing.com
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