Jerome “Jay” Powell is a name that we are all going to hear a lot more of over at least the next four years. This morning, US President Donald Trump nominated Jay Powell as the next chair of the US Federal Reserve. As the Chairman of the US Federal Reserve, Mr Powell will wield incredible power over US financial markets and therefore global markets.
During his presidential election campaign Mr Trump attacked current US Federal Reserve Chair, Dr Janet Yellen, on numerous occasions so it comes as no great surprise that he will not be re-nominating her for the position again when her term expires in February 2018. It is interesting to note however that Ms Yellen is the first Chair not to be re-elected for a second term since 1979 so once again President Trump is breaking with tradition.
Mr Powell still needs to be accepted by the US Senate, however as a sitting Federal Reserve Governor since 2012 he has already been confirmed twice by the Senate, so it appears they will have no issue with him as the next Chair. Prior to joining the US Federal Reserve Mr Powell, who is 64 years old and has an estimated personal net worth of between US$20m and US$55m, started his career as a lawyer. During his career he also worked for the US Treasury department, the Carlyle private equity group and established his own private investment firm Severn Capital Partners.
Markets largely expected this move and took the nomination in their stride as Mr Powell will likely maintain the current US Federal Reserve policy – he has never dissented in a monetary policy vote during his tenure as a Governor. The US Federal Reserve’s current strategy is to slowly reduce the size of its balance sheet and gradually lift interest rates. Given that Mr Powell helped develop this plan we do not expect any dramatic shifts in policy in 2018.
One area where we may see some change is in regards to business regulation. As an acknowledged Republican Mr Powell has previously commented that some of the banking regulations for small banks need to be amended. No doubt President Trump and Wall Street will favour this approach and any reduced regulation.
At some point the US Federal Reserve will need to decide when to stop lifting interest rates and shrinking their balance sheet. Given Mr Powell’s prior public statements, we believe he will settle on a lower interest rate than was the case before the global financial crisis. The unknown quantity is whether he can control the more hawkish of his Federal Reserve Governors and gain their support in the normalisation of monetary policy.
Overall, we are optimistic about the US Federal Reserve’s next chairman. We believe the markets will be receptive to his tenure and that there are unlikely to be any dramatic surprises in monetary policy. At this stage, it appears to be a continuation of what we already know.
Keep Wealth Partners Pty Ltd (AFSL 494858)
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