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Powell tipped to succeed Yellen as Fed Chair

By Patrick Higgins  |  03/11/2017 15:05
The Federal Reserve will get its first non-economist chief for the first time in four decades after President Trump's announced that he was replacing Janet Yellen with Jerome Powell.

Mr. Powell, a former lawyer, Wall Street executive, and currently sitting on the Fed's board, is seen as a status-quo nominee. He is expected to continue the wait-and-see policies of Janet Yellen and her predecessor Ben Bernanke; by slowly raise interest rates and gradually taper the Fed's balance sheet.

Trump's announcement of Powell was no surprise to observers but did have a dampening effect on the markets. 10-Year Treasury yields fell from a high of 2.39 per cent on Wednesday to 2.34 today, down from the levels of 2.5 per cent seen in mid-October when Trump was considering more bullish candidates for the Fed job, such as former Fed governor Kevin Warsh and economist John Taylor.

Powell, characterised as a dove, has never cast a dissenting vote as a Fed board member. Espousing such careful monetary policies, therefore, has many stock investors betting that Powell will maintain the, "Fed put," i.e., the flooding of currency markets with cash and the continual buying of government bonds to keep interest rates artificially low. He is likely to raise interest rates at the same pace as Yellen would have. Accordingly, a rate rise in December is still considered probable. Furthermore, many onlookers are speculating that his continuation of fiscal cautiousness, especially his support of slow Fed tapering, will, therefore, constitute a weaker dollar.

However, three dilemmas left over from the Yellen era creates issues for Powell Fed's as to how they will confront them in the coming years. The critical questions of, "how much tapering should be done, in what period should it be elongated over, and when/should the Fed's balance sheet be completely unravelled?" are just some of the complicated matters to will need to be addressed by Powell. Though he has not come out with specific ideas of personal policy, Powell is not expected to differ from his predecessors drastically and is therefore somewhat predictable.


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