Is Fed Chair Nominee, Jerome Powell, The Right Choice?

Jerome “Jay” Powell was nominated yesterday by President Trump to serve as the next Fed Chairman, which means potential changes in the housing industry. If confirmed, Powell will take the helm beginning February 2018. Our Manager of Housing Economics, Ali Wolf, eagerly awaited the announcement and dug into the potential impacts on the housing industry. Click the image below to listen to Ali’s analysis on SoundCloud. (Listen time: 4 minutes)

• No second term for Yellen breaks tradition. Historically, the leader of the Fed is reappointed after they make it through the first term no matter which political party holds The Executive Branch. This is the first time in modern history that the sitting Fed Chair is not reappointed for a second term. President Trump said the divergence is so he can make his own mark on the Fed.
• Jay is not an economist by trade. Powell’s formal training comes in the form of politics and law. Some representatives on the Hill that would prefer a classically trained economist to take on this role have cited the disappointing tenure of G. William Miller, who was Fed Chair in the ’70s. Miller was a businessman and lawyer and was ill-prepared to deal with the economic climate. Powell is different than Miller, though, because he has been part of the Fed’s Board of Governors since 2012. While not classically trained, Powell has on-the-job experience related to policy.
• December rate hike is on track. We have access to Powell’s track record given his experience with the Fed. He typically votes in line with Chair Yellen and supports the current path of gradual rate hikes. In the most recent minutes, The Fed signaled that a rate hike in December would likely be warranted. The Fed raised short-term interest rates two other times this year, yet the impact on mortgage rates is muted. Currently the 30-year fixed rate mortgage rate is 3.94%.
• Financial regulation could soften. Powell’s stance on financial regulation sets him apart from Yellen. Powell believes that keeping some of the regulation set in place after the financial crisis makes sense, but is open to amendments. Removing some restrictions could benefit the housing market, which would make it easier for banks and individuals to get access to credit. This will likely help expedite his Senate confirmation.

Given where we are in the business cycle, we believe Powell was the best choice of the Fed contenders. His history of supporting gradually rising short-term rates, and his experience with the Fed since 2012, will prove beneficial as the economy normalizes.