Trump Picks Powell for Next Fed Chair; Signals Continuity

--Powell Backs Yellen's Gradual Approach to Monetary Tightening

--If Approved, Would Be First Fed Chief Without Economics Degree in Decades

By Jean Yung

     WASHINGTON (MNI) - President Donald Trump on Thursday nominated Federal

Reserve Gov. Jay Powell to succeed Janet Yellen as chair of the U.S. central

bank, a move that is expected to auger continuity in the Fed's monetary policy

strategy. 

     Powell, 64, who joined the Fed in 2012 and who has voted with the majority

on all rates decisions so far, is expected to stay the gradual course of

monetary tightening charted by Yellen beginning with the first post-crisis

interest rate increase in December 2015. 

     Since then, the Fed has raised its benchmark fed funds rate to a target

range of 1.0% to 1.25%. The Federal Open Market Committee projected in September

that the short-term borrowing rate would rise to 2.9% by the end of 2020, just

above its estimated longer run level of 2.8%. 

     Powell also supported a predictable approach to reducing the Fed's $4.5

trillion balance sheet by voting to approve a multi-yearlong program of allowing

increasing amounts of maturing securities to run off over a 12-month period. 

     "U.S. monetary policy normalization has been and should continue to be

gradual, as long as the U.S. economy evolves roughly as expected," Powell said

in a speech last month. 

     If approved, as widely expected, by the Senate, Powell would inherit a U.S.

economy at full employment. But he must balance achieving the Fed's 2% inflation

target without pushing the labor market too far beyond sustainable levels. 

     While inflation has remained stubbornly sluggish for much of the year, the

unemployment rate, already at a 16-year low of 4.2%, is expected to dip further

below full employment as Fed officials keep policy accommodative to support

pricing pressures. 

     Powell, who's a lawyer by training, will also need to manage the Fed's

response to a possible fiscal stimulus out of the Trump administration and the

Republican-led Congress. The result, if he is successful, may be modestly higher

rates, inflation and growth. 

     On the regulation front, Powell has supported easing some rules but remains

broadly supportive of core post-crisis reforms. 

     In picking Powell, Trump passed over Stanford economist John Taylor, a

longtime critic of  the Fed, as well as former Fed Gov. Kevin Warsh and National

Economic Council Director Gary Cohn. And in breaking with a tradition of

renominating the sitting Fed chair, Trump declined to rename Yellen to the post.

     In addition to appointing a chair, Trump has three other seats on the

seven-member board to fill -- or four if Yellen leaves the Fed after stepping

down as chair. 

     Powell, with a background in investment banking, would be the first Fed

chair in decades without an economics degree. He has a law degree from

Georgetown University and previously served for about a year as under secretary

for domestic finance under George H.W. Bush. He joined the private equity firm

Carlyle Group in 1997, where the Fed's newly installed vice chairman of

regulation, Randal Quarles, has also worked. 

     President Barack Obama appointed Powell, a Republican, to the Fed Board in

2011. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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