Trump to select Powell as next Fed Chair, but what are the implications for the market?

There has been a fair bit of market reaction to the various leaks, rumours and speculation around who the next Fed chair will be when Yellen's term is up on the 3r of Feb.

The clock is ticking and for a smooth transition to take place, the two-horse race between Taylor and Powell looks as though might have gone to Powell by the nose. The Wall Street Journal reported that a source has said that a decision is not final, but at this point, Trump has settled on Mr. Powell as the selection.

Who is Powell? 

Powell would be the first Fed chairman since 1981 without a PhD in economics. Instead, Mr. Powell was born in February 1953 in Washington, D.C. He received an A.B. in politics from Princeton University in 1975 and earned a law degree from Georgetown University in 1979. While at Georgetown, he was editor-in-chief of the Georgetown Law Journal. Perhaps this is something in his favour and why Trump favours Powell, given how Trump tends to view scientific and academic expertise with scepticism.

It was Barack Obama who nominated Jerome H. Powell to the Fed in 2012. As per the Federal Reserve's website: "Powell took office as a member of the Board of Governors on May 25, 2012, to fill an unexpired term. He was reappointed and sworn in on June 16, 2014, for a term ending January 31, 2028. Mr. Powell served as an Assistant Secretary and as Undersecretary of the Treasury under President George H.W. Bush, with responsibility for policy on financial institutions, the Treasury debt market, and related areas. Prior to joining the Administration, he worked as a lawyer and investment banker in New York City."

Bearish for the dollar, bullish for Wall Street?

As a member of the Board of Governors of the Federal Reserve, Powell has not dissented from any decision to maintain or raise the federal funds rate since his appointment in 2012, according to the Fed minutes.

However, Powell might be somewhat out of step with the administration’s focus on economic growth, considering he has been characterized as a moderate on monetary and economic policy and a  ‘centrist’ on inflation, somewhat in contrast to a Fed board that is a whole more tolerant of inflation. Either way, Treasury Secretary Stephen Mnuchin said in September that the Trump administration was “less concerned about inflation at the moment.” This could be a big upset for the US dollar if the White House is looking for the Fed to stop raising interest rates or decelerate “quantitative tightening”. According to the Wall Street Journal article, Powell is more open than Yellen has been to winding down financial rules implemented after the crisis, possibly including capital requirements for banks. In summary, Powell is the “safe pair of hands” candidate from the recent mainstream of thinking on monetary policy.