Recently FED governor Jerome Powell was nominated to replace Janet Yellen as Chairman of the FED, effective in February 2018. The choice of Governor Powell from a short list of six or more candidates was not considered surprising or controversial. Mr. Powell has been a FED governor since 2012 and has a voting record very similar to Chairperson Yellen throughout the last five years and his statements and remarks were almost always in line with the majority opinion.
The one difference in this nomination is the background of the candidate. Almost all previous FED chairmen have had PHD’s in economics and came either from a long career as a central banker or from academia. Mr. Powell’s background is in private equity and as an investment banker. The only previous FED chairman to come out of the business community was G. William Miller, who became Chairperson of the FED under Jimmy Carter in the late 1970’s. His chairmanship, which lasted just over one year, is considered a disaster as he believed in promoting economic growth with little regard for inflation concerns. His disregard for the second rail of the FED’s dual mandate lead to runaway inflationary pressures in the late 70’s and he was ultimately replaced by New York FED chair Paul Volker, who ultimately is considered by many the most effective and aggressive FED leader in history.
Many believe with Governor Powell’s business and Wall Street background that FED policy may have a greater appreciation of the role capital markets play in shaping future FED policy. Whether this occurs or not in general most FED observers believe the differences in FED policy going forward will be minimal compared to the current FED leadership. A final point on this subject is the fact that in addition to Governor Powell’s Chairperson nomination, there are likely to be up to three new governor appointments over the next twelve months that could further influence policy. So stay tuned for future developments with these pending changes.
Jim Bernard, CFA, is the Managing Director, Fixed Income at Ancora Advisors LLC a SEC Registered Investment Advisor. He is also a Registered Representative and Registered Principal of Inverness Securities, LLC. (Member, FINRA/SIPC)
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