Trump expected to tap Federal Reserve official Jerome Powell to replace Janet Yellen as central bank chief

Reporting from Washington —  President Trump is leaning toward picking Federal Reserve official Jerome H. Powell, a Republican lawyer and former investment banker, to replace Janet L. Yellen as head of the central bank, according to a person close to the White House with knowledge of the process.

The president could still change his mind before Thursday’s formal announcement, the person cautioned. Powell has the backing of Treasury Secretary Steven T. Mnuchin, and in the eyes of analysts is considered a safe choice who would provide continuity and stability on monetary policy.

White House Press Secretary Sarah Huckabee Sanders said Monday that “no decision has been finalized.”

Trump has created something of a public spectacle about his upcoming selection, speaking with relish about the opportunity to name his person to lead the Fed and even taking a straw poll of lawmakers on his final candidates, who include the current Fed chair, Yellen, and Stanford University economist John B. Taylor, who has been critical of Fed policies under Yellen.

In one sense, a Powell pick would hardly seem to fit with Trump’s populist predilection to turn Washington upside down. Powell, 64, was tapped by Obama and has served on the Fed’s Board of Governors with Yellen since 2012. He has not been known to make waves, never dissenting on Yellen’s and the committee’s policy decisions to raise interest rates very cautiously.

Then again, Trump, like other presidents, wants low interest rates to promote economic growth, and Powell would represent a break from the past in some potentially significant ways. In recent decades, Fed chairs — including Yellen and her predecessor, Ben S. Bernanke — have been filled by economists. Powell is a lawyer by profession, a graduate of Georgetown University law school.

The prior three Fed chairs all served more than one term after being renominated by a president from the opposing party.

Yellen, a Democrat who was nominated by President Obama, has staunchly defended the stricter banking regulations put in place after the 2008 financial crisis. Powell is viewed as more likely to ease some of those rules, particularly for smaller banks. Trump and many Republicans wanting to scale back financial regulations argue that they have stunted economic growth.

“There is certainly a role for regulation, but regulation should always take into account the impact that it has on markets — a balance that must be constantly weighed,” Powell said in an Oct. 5 speech. “More regulation is not the best answer to every problem.”

Powell must be confirmed by the Senate to replace Yellen, and is likely to face tough questioning on regulations as well as his views on inflation. Republican critics of Yellen’s policies have argued that they run the risk of higher inflation.

Powell has extensive Washington experience. He was an assistant Treasury secretary under President George H.W. Bush. Before joining the Fed, Powell had been a visiting scholar at the Bipartisan Policy Center think tank and a partner at the Carlyle Group, a high-powered Washington, D.C., asset-management firm.

“He is a reserved person, politically attuned, doesn’t speak off the top of his head,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. Rupkey said Powell’s lack of training or advanced degree in economics could present challenges in understanding and communicating highly technical and complex aspects of monetary policy and economics.

Yellen, a former UC Berkeley economics professor, became the first woman to lead the Fed when Obama tapped her in 2013 after liberals rallied behind her as she vied with former Treasury Secretary Lawrence Summers for the job. Yellen had served as the Fed’s vice chair under Bernanke and began her first four-year term in February 2014.

Trump was highly critical of Yellen during the 2016 presidential campaign, accusing her of keeping the Fed’s benchmark interest rate “artificially low” to help fellow Democrats President Obama and Hillary Clinton. A Trump campaign video included images of the Fed and Yellen, casting her as part of the “political establishment” that has “bled our country dry.”

But Trump’s views on Yellen softened after he took office. On July 25, about a week after Yellen had breakfast with Trump’s daughter and advisor, Ivanka, the president said he was considering renominating Yellen.

“I like her. I like her demeanor. I think she’s done a good job,” Trump told the Wall Street Journal. “I’d like to see rates stay low. She’s historically been a low-interest-rate person.”

Analysts said Yellen, however, might have hurt her chances of renomination by strongly defending tougher financial regulations during an August speech.

Taylor, 70, is well-regarded in academic circles for his research especially on central banking and also has considerable Washington experience, having served in the administrations of both George H.W. Bush and his son, George W. Bush. Mild-mannered and cerebral, Taylor was considered somewhat of a dark horse for the Fed chair nomination but reportedly made a strong impression during a recent meeting with Trump.

He is best known for the Taylor Rule, a framework meant to provide a more disciplined, rules-based approach to central banking and monetary policy decisions. An important principle of the Taylor Rule prescribes that interest rate changes should be based on the movement of inflation and output. By that rule, the Fed’s benchmark short-term interest rate should be considerably higher than it is today.

Among the other candidates Trump reportedly considered were former Fed Gov. Kevin Warsh and top White House economic advisor Gary Cohn, a former executive at investment bank Goldman Sachs. At one time, Cohn was widely believed to be the front-runner, but he apparently fell out of favor after publicly criticizing Trump’s response to the violence during a white nationalist march in Charlottesville, Va.

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