Jerome Powell, Nominee for Fed Chair, Brings Business Background to Top Economic Post
Today’s article was submitted by Sumit Malik, Contributor.
President Trump has nominated Jerome Powell, member of the Federal Reserve Board of Governors since 2012 and former partner of private equity giant The Carlyle Group, as the next Chair of the Fed. The President’s decision to forgo reappointment of current Chair Janet Yellen will make her only the third single-term leader of the Fed since 1934. In selecting Powell, Trump turns to a pragmatist who is widely expected to maintain similar monetary policy philosophy as his predecessor, with whom he has consistently voted during his tenure at the Fed.
Powell would end a stretch of over four decades since a non-economist has ascended to the helm of the Federal Reserve. After graduating from Princeton and Georgetown Law, Powell initially worked as a lawyer in New York and subsequently joined Dillon Read & Co. as an investment banker. He was appointed as Undersecretary of the Treasury under the George H. W. Bush administration, led the Industrial Group at Carlyle, and was a visiting scholar at the Bipartisan Policy Center before his appointment to the Fed Board of Governors by former President Barack Obama.
In his nomination announcement, Trump compared Powell’s extensive private sector experience to that of William McChesney Martin, the longest-serving Federal Reserve Chair, holding the position across five presidential administrations from 1951-1970. Powell brings a measured voice to the nation’s top economic post, advocating for a gradual reduction in the accommodative monetary policy that was designed to support the economy in the aftermath of the financial crisis. Following an anticipated hike in the Fed’s benchmark interest rate in December, the Fed under Powell is expected to stay the current course and raise rates about three more times in 2018, while simultaneously taking steps to incrementally reduce the size of the Fed’s balance sheet.
Powell, a Republican who also attracted Democratic votes in his confirmation for the Fed Board of Governors in 2012 and 2014, is likely to receive bipartisan support in his bid for Fed Chair. His ideology on monetary policy is broadly consistent with that of Yellen and the majority of the current Fed Board, and as an inside choice with experience working under both Yellen and her predecessor Ben Bernanke, he provides familiarity and continuity. Powell has developed a reputation as a consensus-builder and has never cast a dissenting vote at a meeting of the Federal Open Market Committee. In a speech at West Virginia University, he praised the value of “institutionalized diversity of thinking,” noting that “the best outcomes are reached when opposing viewpoints are clearly and strongly presented before decisions are made.”
Shifting tides at the Fed under the current administration make Powell’s leadership and consensus-building as important as ever. Depending on whether Yellen remains on the Board of Governors following her term as Chair, the President has the opportunity to fill three to four more seats. Trump’s initial slate of candidates for Fed Chair suggests a broad spectrum of policy paradigms under consideration; the other finalist for the nomination, Stanford economist John Taylor, has been sharply critical of the Fed and has sought a swifter retreat from its stimulative activity.
Powell’s success hinges upon his business acumen and his technical economics knowledge alike. In his tenure on the Fed Board of Governors, he has differentiated himself by leveraging core competencies heavily emphasized in formal business education—effective leadership, clear communication, open-mindedness, and emotional intelligence—which he honed through years of industry experience. Despite common criticisms of the revolving door between the private and the public sector, or the tension between a business background and an academic approach, Powell illustrates a powerful complementarity between the two.
The next Chair takes the reins of the Fed as it grapples with defining the scope of its monetary policy interventions, managing its path forward from today’s accommodative measures, refining its regulatory authority, and maintaining its independence in a charged political climate. For Powell, a tested leader in both government and industry, it should be business as usual.
Sumit Malik (HBS ’19) is an investor, writer, and entrepreneur. Professionally, his background is in venture capital and private equity at Warburg Pincus, strategy as a board member of Santander Asset Management Chile, and investment banking at Goldman Sachs. Personally, he writes for academic and popular publications and performs music and poi (light- or fire-spinning). He previously received an A.B., summa cum laude, from Harvard College and an S.M. from the Harvard Graduate School of Arts and Sciences.
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