Trump’s New Man at the Fed Is Only the Beginning

The world’s still most powerful central bank is getting a new board chair. On Thursday, President Donald Trump nominated Jerome (Jay) Powell as head of the Federal Reserve Board, the regulatory body of the U.S. central bank. In doing so, Trump is breaking with the custom of awarding a Federal Reserve board chair at least two 4-year terms. The current chairmanship of Janet Yellen, who has served since 2014, will not be extended. Powell has usually voted identically with Federal Reserve Board Chair Yellen, but apparently, Trump mainly wanted to appoint his own candidate.

The continuity of approach has its advantages: the White House nomination can expect little resistance in Congress, where a smooth confirmation process is expected. The stock markets have reacted calmly.

The course of the Federal Reserve is of great importance, not just for the U.S., but also for the rest of the world. The United States is still the largest economy in the world; its financial markets set the tone. The dollar remains, for now, the currency around which the world economy turns, and plays a dominating role in the currency markets.

Plus, policywise, the Fed is ahead of other countries and regions, like the eurozone. Quick action after the financial crisis erupted, and while the eurozone needed considerable more time, has contributed to making America’s policy the leading policy. The eurozone also had to deal with a euro crisis, and therefore, in part, remains economically behind. This combination of influence and timing enhances the meaning of the Fed’s monetary policy considerably, and thus also that of the appointment of a new chair.

This does not necessarily mean, however, that the policy of the Fed will now continue down the same path. It is known that Powell believes regulation of the financial sector after the 2008 crisis has gone too far. Deregulation, with all its risks, is in line with the Trump administration’s policy. Additionally, one can never know at the outset what mark a new president will leave on policy once he is in office.

And, perhaps most importantly, Powell will not be Trump’s only appointment at the Fed. Currently, three out of the seven board seats are vacant. This White House has an unprecedented advantage in that it can immediately appoint a majority of the Fed Board. The new chair of the Fed Board may appear to be a moderate choice, but Trump’s influence on the central bank will only become apparent once the entire board is complete.

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