Monday President Trump's nominee for the new Fed Chairman Jerome Powell exceeded expectations from investors. If confirmed, Jerome Powell replaces Janet Yellen as the new Federal Reserve Chairman. The markets expect a smooth path to Mr. Powell's nomination. The direction of interest rates, asset values and financial regulation rest with new Fed Chairman Jerome Powell. However, the answer everybody wants to know, does the new Fed Chairman follow President Trump's or our wishes?
The New Fed Chairman, a “lawyer by training but an investment banker by trade”, ties to Wall Street are deep and strong. From 1981 to 2011, Mr. Powell experience ranged from Davis, Polk & Wardell to The Carlyle Group. Mr. Powell’s nomination and confirmation to the Federal Reserve Board of Governors, in 2012, gathered bipartisan support. This does not happen very often and bodes well for us. His support of President Obama’s financial regulation after the 2008 financial crisis have mixed opinions from Republicans and Democrats. New Fed Chairman Jerome Powell shows that neutrality and getting the right answers versus the partisan answer serves investors well.
In 2013, Mr. Powell’s speech about ending “too big to fail” counters beliefs President Trump holds dear about de-regulation. The speech laid a clear process of not repealing Dodd-Frank Act outright. Rather Mr. Powell promoted controlling rampant greed with enough checks and balances. Mr. Powell comments in the past shows support for the Consumer Protection Act though he believes efficiencies should be added to the original Act. Not something the Democrats will show excitement over. In fact, new Fed Chairman Jerome Powell's comments, and actions follow Janet Yellen and Ben Bernanke. Therefore investors should expect gradual interest rate rises as long as growth remains above trend. In contrast to the last 40 years of Fed Chairmans, Mr. Powell does not have an economics degree and would be the richest Fed Chairman ever.
Everybody knows of the widening income and wealth gap in America. Some of our politicians, Republicans, and Democrats, know the answers to solving this widening of inequality. They require softer touches than Senator Sanders or President Trump desire. Mr. Powell is not an economic ivory tower egg-head. His approach to economics and finance bases itself on pragmatism. A rare quality in Washington. His pragmatic actions over the last 35 years are well documented. President Trump realizes a sharp rise in interest rates would rock the US economic and financial successes we have all enjoyed. Mr. Powell’s nomination signals that with continued gradual growth and no external disruption that interests will gradually rise as the market expects. A good thing for now.
To know how Jerome Powell thinks and acts is to view his background. Mr. Powell’s has been married since 1984 with three children. His father, a Washington DC lawyer, provided for a normal upbringing. Mr. Powell enjoys biking to work when he can. In short, he is normal. He leads with a “behind-the-scenes voice” where others feel comfortable following his ideas. With this in mind, investors can expect a non-bully leading the Federal Reserve for continued calm on gradual rising interests and asset values to match.
Every Fed Chairman concerns themselves with our national debt. As investors know all too well, debt without growth leads to negative growth over time. On Tuesday, Federal Reserve Chairman nominee Jerome Powell testified before the Senate Banking Committee that the reduction of the Fed’s $4.5 trillion portfolio could reduce faster than expected subject to all things remaining balanced. Mr. Powell reminded the Senators that actions to continue US economic growth are ‘in your lane, not so much ours.” Investors can expect the new Fed Chairman Jerome Powell holding our Washington DC politicians accountable for their actions which includes President Trump.
The nominee for new Fed Chairman Jerome Powell provides investors, someone, to balance unbridled Wall Street greed and constricting Bernie Sander political rules. Outlying events that could disrupt this utopian outlook exist. Specifically an external crisis (war with North Korea or Chinese debt implosion) or faster growth on proposed tax cut effects. For this reason, the champion for investors, Jerome Powell as new Fed Chairman, leads the way.