Powell in Power: President Trump's Mark on the Federal Reserve

By Andrew Falduto

On December 5, the Senate Banking Committee voted to advance the nomination of Jerome “Jay” Powell as the Chairman of the Federal Reserve in a 22-1 vote, with the only Senator in opposition to the nomination being Elizabeth Warren (D-MA). This past November, Jerome H. Powell became one of the most recent nominations in the Trump Administration and is expected to become the new Chair of the Federal Reserve on February 3 to replace Janet Yellen, who has served as Chairwoman since 2014. Considering Powell has served on the Board of Governors of the Federal Reserve since 2012 when he was appointed by President Barack Obama and has proved to be a moderate Republican with years of experience, this nomination is not controversial 10 out of the 11 Democratic Senators on the Senate Banking, Housing, and Urban Affairs Committee voted to further his nomination, including Ranking Member Sherrod Brown (D-OH) and even somewhat far left members such as Jack Reed (D-RI), Chris Van Hollen (D-MD), and Brian Schatz (D-HI). Although this decision has not sparked as much debate or controversy as many of President Trump’s other federal nominations, there are still massive implications of possible changes that may occur in regards to the economy, federal monetary policy, and changes within the Federal Reserve itself.
In his five and a half years on the Board of Governors, Powell has never dissented from any of the decisions made by the Board or by Yellen. Powell himself has stated, “One factor that favors easier adjustment in [emerging-market economies] is that U.S. monetary policy normalization has been and should continue to be gradual, as long as the U.S. economy evolves roughly as expected.” This similarity in monetary policy poses the question: why would President Trump nominate a new Chair instead of simply renominating Yellen? Primarily because, despite their similar ideologies, Powell is much more heavily favored by conservative Senators than Yellen is, thus easing relations between the Senate and the President, which have been questionable since the President took office last year. This strategy would also ensure a quick and easy nomination process, as it avoids any possible contention of the renomination of Yellen. Ever since the Republican Party took control of the executive branch, the GOP as a whole has been more confident in Congress; therefore, the threat of heavy resistance towards the nomination of a Democrat, such as Yellen, has drastically increased. Not to mention President Trump’s presidency has been filled with unpredictable and sometimes unnecessary decisions, including the nomination of Jerome Powell, a lawyer and investment banker who could become the first Chair of the Federal Reserve not to have a Ph.D. in economics since Paul Volcker, who was nominated by President Jimmy Carter in 1979. Continuing his string of unusual decisions, the President Trump has stated before that he wants to leave his “own mark” on the central bank as well.,
While Powell’s core economic principles may not have deviated from Yellen or the Board of Governors as a whole, if he is successful in following through with his previously stated intentions as Chairman, there would be lasting effects. Just after the nomination, Ben Bernanke, who served as Chairman from 2006 to 2014, became one of the first to comment on the decision, stating, “As Jay told me, we needed an ‘off ramp.’” The “off ramp” referenced here is the idea that the Federal Reserve must be able to instill new, alternative policies if necessary in case of a recession. This “off ramp” policy would also include a drastic decrease in the Federal Reserve balance sheet, which is the tally of the Fed’s assets and liabilities. In a speech in June, Powell commented on the Federal Reserve balance sheet, showing his support for decreasing the balance from the current $4.5 trillion to $2.9 trillion, or if possible, $2.4 trillion. This decision would primarily decrease the amount of control the Federal Reserve has over overall interest rates, by hindering the Fed’s ability to buy bonds from private banks. While Powell seems to be implying a shift toward less aggressive monetary policy, promoting the laissez-faire capitalism of the Trump administration, his actions on the Board have shown more consistent government support of the economy. “[Powell]’s detailed analysis and highly effective presentation of the day-by-day cash flows of the federal government was instrumental in last year’s efforts to resolve the debt ceiling crisis,” said Jason Grumet, the president of the Bipartisan Policy Center. This odd, but still coherent mixture of ideologies, seems like it will gradually shift the focus of the Federal Reserve from controlling the economy to more passively monitoring it, which many could argue was the original purpose of the Federal Reserve.

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