How Powell could differ from Yellen: Nominee faces hearing

By Martin Crutsinger

 

Associated Press

WASHINGTON — Jerome Powell’s confirmation to be chairman of the Federal Reserve is considered all but certain. Yet when a Senate committee holds a hearing Tuesday on Powell’s nomination, one question will hover above the discussions:

Will Jerome Powell be Janet Yellen by another name – or a different kind of Fed leader?

Yellen will leave the Fed in February after four years as chair, a period characterized by a cautious stance toward interest rate hikes, relative transparency about the Fed’s expectations and projections, and support for stricter bank rules that were enacted after the 2008 financial crisis.

Here are three areas where a Powell Fed might differ from the Yellen Fed:

Interest rate policies

In his five years as a member of the Fed’s seven-member board of governors, Powell has built a reputation as a centrist. He never dissented from the policies advocated by Yellen or her predecessor, Ben Bernanke.

What investors don’t know is whether Powell, once he becomes chairman, would push to accelerate the central bank’s rate increases – a step favored by some of the Fed’s regional bank presidents. They say they fear the Fed’s still-low rates, at a time when the economy appears close to full health, risk sowing the seeds of high inflation or dangerous bubbles in such assets as stocks or home prices.

For seven years after the financial crisis erupted, the Fed left its key policy rate unchanged to help the economy emerge from a devastating recession. The Yellen Fed raised rates once each in 2015 and 2016. This year, the Fed has boosted rates twice and is signaling it will do so again in December.

In his own remarks on rate policies, Powell has so far stuck close to the Yellen line. In a speech in June, he said while low unemployment argued for raising rates, weak inflation suggested the Fed should move cautiously in doing so. That wary approach reflected Yellen’s own warnings about the need to raise rates only incrementally, depending on the latest economic data.

Communications

In her four years, Yellen has extended the efforts begun by Bernanke to make the historically secretive Fed more open in communicating to the public. Yellen continued the quarterly news conferences begun by Bernanke. And she opened up avenues for the Fed to signal future rate decisions.

Another point of dispute is whether the Fed should adopt a policy rule to guide its rate decisions, a step advocated by conservative Republicans in Congress.

Powell has expressed opposition to adopting a single rule to govern Fed rate decisions, saying it would prevent the Fed from being fully flexible in its actions.

Banking regulations

Powell’s actions on the Dodd-Frank Act, the law enacted to tighten banking regulations after the 2008 crisis, may turn out to be the area where he will differ the most from his predecessor. Yellen rejected arguments the tighter regulation had hurt economic growth by making banks less likely to lend. Somewhat differently, Powell has generally supported the broad thrust of Dodd-Frank while suggesting it had gone too far in some areas.

 

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