The Corner

Economy & Business

Jerome Powell: The Republican Yellen?

Yesterday, President Trump nominated Jerome Powell to be the new chairman of the Federal Reserve. If the Senate confirms him, Powell will take over when Janet Yellen’s term ends in February. Powell has been called the “Republican Yellen” by supporters and detractors alike because of the expectation that he will move the Fed in a more deregulatory direction, but stay the course Yellen set when it comes to monetary policy.

Since being appointed as a Fed governor in 2012, Powell has consistently voted with Yellen — and before her, Ben Bernanke — on questions of policy. Yellen’s monetary policy has been characterized by patience: The Yellen-led Fed has gradually raised the federal-funds rate and reduced its massive balance sheet.

Powell delivered a speech in June that laid out views mostly in line with Yellen’s. The bank’s “patience has paid dividends,” he said. “While the recent performance of the labor market might warrant a faster pace of tightening,” he continued, sluggish inflation “argues for continued patience, especially if that progress slows or stalls.” It seems likely that Powell will indeed follow in Yellen’s footsteps on the monetary-policy front.

But the Fed does more than set policy. It also plays a major role in regulating financial institutions. Here, Powell’s opinions diverge from those of Yellen, who has defended a tight regulatory regime for “stabilizing” the economy. Powell, on the other hand, wants to deregulate community banks, relax liquidity constraints on larger firms, and relax lending standards in the housing market. These measures are in line with the Trump administration’s focus on regulatory reform, and would likely spur growth. The most controversial of these positions (housing-market reform) is the one Powell would have the least control over.

Some on the right are bearish about the pick. The Wall Street Journal editorial board has questioned Powell’s “independence and capacity for the job” on the grounds that Steven Mnuchin pushed hard for Powell; that Powell has sat on the Federal Open Market Committee during a period of relative calm; and that markets will not take a man with a “blank intellectual slate” seriously.

As Yuval Levin observed yesterday, however, “The people charged with making key economic decisions or with advising those who do now don’t really know how to explain the state of our economy or how to predict its course.” This state of affairs necessitates an open-minded Fed chairman, not one with overriding convictions whose intransigence could hurt the economy. Jerome Powell might be the Republican Yellen — a believer in deregulation, a pragmatist on monetary policy — but that makes him the right man for the job.

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