11 – 6 – 2017

 

Jerome Powell has been appointed by President Trump to replace Janet Yellen as Chairman of the Federal Reserve. His term will begin in January 2018. If Ms. Yellen goes ahead with the expected December rate hike, it will likely be her last major act as the leader of the world’s most powerful central bank.

Powell has been described as being very “Yellen-like” on Fed policy, but has also criticized her performance while Fed Chair as well as that of her predecessor Ben Bernanke. “Jay” Powell, as he is commonly referred to, will be the first Fed Chair in decades who hasn’t had a life-long career as an economist. Both Yellen and Bernanke carry PhD’s in economics while Powell is a lawyer who has also worked many years as an investment banker on Wall Street. He began working in the Federal Reserve System back in 2012 as a governor at the New York branch of the Fed.

Many analysts agree that Powell will continue with Yellen’s model of slow and steady recovery, but what if things don’t go smoothly during his term? There are innumerable signs out there that a big shake up is imminent, whether it is on Wall Street or in North Korea, etc. Powell may preside over a financial meltdown far worse than what we saw in ’07-’08. Slow rates of inflation and cutting back the Fed’s balance sheet may sound like grand ideas, but these policies are 100% dependent on his ability to maintain the current status quo. Any major issues which arise can either be met with yet another attempt at quantitative easing, which undoubtedly will send the U.S. Dollar straight to the graveyard, or something even more painful; the long dreaded cycle of deflation.

Either will be terribly unpopular. We do not know that much about Jay Powell for certain, but we do know that he doesn’t want a big crash to take place on his watch. On this point, Mr. Chairman, we wish you the best of luck.