Not An Academic (And that may be AOK)

November 11, 2017 | Vito Finucci


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“I never saw him lose his temper…Jay doesn’t like to promote himself like so many in Washington. He likes to do unglamorous jobs…he is a wise “owl””

 

Well respected Fed Dallas Chair, Richard Fisher

 

This past week, President Trump named Jerome Powell as his choice to serve as the next chairman of the Federal Reserve. Being the chair of the largest central bank in the World and setting monetary policy, both of which come with great responsibly, so we have dedicated an infomail on it.

 

Assuming Mr. Powell is confirmed by the Senate, he would succeed current chair Janet Yellen when her term ends in February. Ms. Yellen was an Obama appointee who took over in February 2014 from Ben Bernanke. Mr. Powell is broadly viewed as a policy maker who would carry on the cautious approach in influencing interest rates which has been the hallmark of Ms. Yellen’s term.

 

What do we know about Jerome Powell?

  • He is 64 years of age, married, 3 children
  • Is a carded Republican (Yellen was a Democrat)
  • From 2012 to current a Member of the Federal Reserve Board of Governors (appointed by President Obama)
  • Bachelor’s Degree in Politics from Princeton, law degree from Georgetown University
  • He is the wealthiest individual at the Fed (estimated between $30-55 million)

One of the biggest early criticisms of Mr. Powell is, if he is confirmed, he would be the first NON economist to chair the Federal Reserve. And while some think that may be a bad thing, I don’t think so. Lesser known about Mr. Powell is the rest of his resume:

  • 2000-2012 –   Visiting scholar at the Bipartisan Policy Center (focuses on federal and state fiscal issues)
  • 1997-2005 –   Partner at giant asset manager The Carlyle Group
  • 1990-1993 –   Worked under Secretary of Finance in Treasury Department (under George W. Bush)

It would appear Mr. Powell would be a break from what we’ve had the past 30 years, as he has a greater depth of understanding of law and politics. That should help him better liaise between Congress and the White House.

 

His role as an investment banker should help him in his capacity to be the regulator of banks, and separate the recent years of domination of the New York Fed, which often had conflicts.

 

His experience at Carlyle will give him a better understanding on how Fed policy affects corporations and decisions CEO’s and CFO’s make on a daily basis in reaction to Fed policy.

 

Powell’s wealth allows him the luxury of fewer conflicts and the luxury of no preset agenda. Powell was not in favour of QE3, but voted for it nonetheless, and this is where some of his critics base their “dovish” opinion of him.

 

I also believe the fact that he is NOT a PhD. in Economics and has more real World experience, will serve him well. We are currently in year 8 or 9 out of the Great Recession with all-time lows in unemployment, and the Fed has already begun a policy of tightening interest rates.

 

 

(Source: U.S. Department of the Treasury)

 

The fact of the matter is Ms. Yellen will leave the position with her legacy intact. Mr. Powell will most likely have to deal with the next recession, and perhaps the next major bubble crisis, which ironically would be the result of the Fed monetary policy experimentation of the last 10 years and how inflated their balance sheet has become under Bernanke and Yellen.

 

http://www.allgenfinancial.com/wp-content/uploads/2017/07/Federal-reserve-Balance-Sheet-1024x579.png

(Source: Allgen Financial)

And besides, Mr. Powell reportedly plays guitar so he must be OK, right?

 

“In my experience, the best outcomes are reached when opposing viewpoints are clearly and strongly presented before decisions are made.”

      Jerome Powell (March 2017)

 

 

Mr. Powell is expected to easily clear the Senate, which confirmed him 74 to 21 in 2012, and 67 to 24 in 2014.

 

Stay tuned,

 

Vito Finucci, B.COMM, CIM, FCSI

Vice President and Director, Portfolio Manager

 

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