And Trump’s Pick for Fed Chair Is…

Like I said in Nashville, I don’t believe any of the choices for Federal Reserve Chair will matter in the short run. Whoever leads the Fed will have to be able to form a consensus with the 12 Fed presidents and the Board of Governrnors. They won’t be able to foist big changes on policy when they take the reins.

Going into Thursday’s formal announcement, the front-runner for the job was Jerome Powell, who currently serves on the Board of Governrnors and is a current voting member of the Federal Open Market Committee (FOMC). He served in the George H.W. Bush administration, and prior to that, he worked as a lawyer and investment banker.

President Trump officially nominated him for the position yesterday afternrnoon.

Powell is the first Fed chair in 40 years not to have earnrned a Ph.D. in economics. He’s a lawyer by trade – but maybe that’s not so bad considering the former chair’s confusion over what drives inflation! Of course, Powell admitted that inflation was below target and that it was a mystery as to why in an August CNBC appearance.

Powell is a Republican, but he was appointed to the Board of Governrnors by President Obama. And, according to required financial disclosures, his net worth is in the range of $21 million to $61 million, which makes him the richest Fed chair ever.

So much for Trump’s promise to “drain the swamp!”

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Remember early last year, when candidate Trump accused the Fed and Chair Janet Yellen of keeping interest rates artificially low to help fellow Democrats in the previous administration?

President Trump’s tune changed, as he recently said that he thinks Yellen’s done a good job. So, even though he didn’t reappoint her, his choice suggests that it’s just politics as usual.

As Fed chair, Powell will most likely continue the same policies of slow and deliberate normalization of both the balance sheet and interest rates.

More importantly, when the economy inevitably slides into a recession, Powell will most likely resort to quantitative easing, as his predecessors did. That’s not all that comforting a though, as he even admitted last year that QE didn’t stimulate the economy as much as the Fed though it might. That’s why, he explained, the Fed has been so slow to increase interest rates.

So, Jerome Powell is President Trump’s pick for the next Fed chair. That means monetary policy won’t change much in the short or even the medium term. The markets seem happy with the choice, and Treasury rates have dropped over the last few days because Powell was widely expected to be the choice.

Now we’ll just have to wait and see if the Senate will confirm him.

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Good investing,