A new chair for the Federal Reserve

President Trump announced his choice for Fed Chair (formal title: Chairman of the Board of the Governors of the Federal Reserve System): Jerome Powell, a current Fed governor appointed by President Obama in 2012.

I’m disappointed, but not surprised, that he did not reappoint Janet Yellen as chair. I think she had a nearly ideal background for a Fed chair:

Yellen had two strikes against her, namely that President Obama appointed her and that she is a Democrat. Powell is a Republican but other than that I don’t see much difference in terms of Fed policy for the time being.

My concerns about Governor Powell center on the inevitable problems and challenges that a Fed chair faces: financial crises, international economic relations, and getting along with the Board. Here are three questions I would ask at his confirmation hearing:

  1. What role(s) do you envision for the Fed during a domestic financial crises? Is it simply as a lender-of-last-resort, or does the Fed have broader responsibilities for maintaining the stability of the financial system, in particular, and the economy, more generally?
  2. What role(s) do you see the Fed playing in the international financial system? Will the Fed continue to work with other central banks (e.g. with the Bank of Japan and the European Central Bank) to the same extent as in years past? Or, will you follow the Trump Administration’s lead on other foreign policy matters and adopt “America First” positions?
  3. How do you view your role as chairman? As someone who charts his own course and then builds a following for it with the Board (example: Alan Greenspan)? As a chair who leads when necessary but leans towards building a consensus on the Board (example: Ben Bernanke)?

Finally, I wonder if President Trump will consult Governor Powell about the vice-chairman position, recently vacated by Stanley Fischer? I would not be surprised if the president nominated an economist such as John Taylor. Governor Powell’s experience leans more towards the practical, Wall Street side of financial markets while Dr. Taylor is one of the leading monetary economists of his generation. Dr. Taylor also served on George H.W. Bush’s Council of Economic Advisors and was Under Secretary of Treasury for International Affairs for George W. Bush so his political bona fides are in order. They would make a good team, especially when, not if, a too-big-to-fail financial institution starts to flounder, inflation starts rising or sinking, or a trading partner finds itself in dire financial straits.