Jerome Powell’s nomination to lead the world’s most influential central bank signals continuity.

The choice of Jerome Powell to be the next Fed Chair is a clear sign of continuity with the recent regime. Powell represents a break with longstanding tradition only in that he is not a trained economist. However, the Fed does not lack economic expertise, and Powell clearly understands the institution and how it debates policy questions. He is well respected by the staff and members of the Federal Open Market Committee. Still, there is one concern about his background. Powell was not an enthusiastic supporter of quantitative easing (QE), and although he supported the Fed Chair, minutes of meetings from previous years show he was skeptical of the benefits of QE. It’s also true the political winds are not supportive of imaginative approaches to monetary policy anymore.

The choice of Jerome Powell to be the next Fed Chair is a clear sign of continuity with the recent regime.

This means that Powell’s leadership in the event of a recession is a concern. While a recession isn’t imminent, the policy interest rate is likely to be quite low when the next downturn occurs. It may not be possible for the Fed to reduce rates aggressively, and instead it may have to look for unconventional tools. We are concerned that Powell would not be the best leader for the Fed in those circumstances. Ben Bernanke and Janet Yellen had strong enough professional reputations to be able to influence the debate over the approach to monetary policy in a crisis and its aftermath. It’s hard to see Powell playing this role. For 2018, the Fed is likely to continue its current course. We expect the Fed to raise rates twice, and perhaps a third time if the economy responds once the Republican tax plan passes into law. The central bank will also continue to gradually shrink its balance sheet very gradually.


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October marked another month of global expansion, and financial markets remained upbeat against a backdrop of low inflation.