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Powell is former private-equity executive described as low-profile pragmatist and team player.

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November 2, 2017

7 Min Read
Federal Reserve Bank in Washington, D.C.NYCstocker/ThinkstockPhotos

by Rich Miller

A few months ago, Jerome Powell was reckoned to be too tough on banks to get President Donald Trump’s nod for a key supervisory post at the Federal Reserve. 

Now he’s said to be in line for the top job as Fed chairman, with the expectation that he’ll make life easier for the financial industry. A White House announcement is set for Thursday at 3 p.m. in Washington.

In the running to be chief banking overseer, Powell was passed over by administration insiders who associated him with the rush to regulate after the 2008 crash. As a Fed governor since 2012, he did sign off on a lot of new rules -- but only after privately raising some red flags first. The former private-equity executive was at times a lone voice at Janet Yellen’s Fed, warning that well-intentioned regulation could end up holding back the economy. 

That’s a temperate version of Trump’s charge that red tape is choking the flow of credit to business. The president, a former real-estate developer, has also made it clear that he’s fine with the cheap money that’s characterized the Yellen era. Those preferences add up to a Fed chair who would stick with the program on monetary policy and loosen some restrictions on banks -- an equation that’s led Trump to Powell. 

Except for the fact that he’s rich, Powell is unlike Trump in almost every way. He’s a low-profile pragmatist, a team player who avoids making waves. In tapping him, Trump ignored pressure from his own party to put a disrupter like himself in charge at the Fed. Powell was chosen over rivals including Kevin Warsh and John Taylor -- a favorite of Vice President Mike Pence -- who were associated with calls for much higher interest rates and a fundamental shake-up at the world’s most powerful central bank.

By picking Powell, a known quantity, the president may be hoping that the economy and stock market can maintain the winning streaks they’ve enjoyed under Yellen. Her term expires on Feb. 3.

Crisis Leadership 

What’s not known is how the 64-year-old Powell will react should disaster strike, in the form of a crisis or recession. While he had a taste of the former, as a mid-level Treasury official more than a quarter-century ago, Powell has never held a leadership position during a financial emergency. A lawyer by training, he’s also not spent his career monitoring the ups and downs of the economy -- as Yellen has done.

“He does not have the extent of background and experience as Yellen, which does raise concerns about how he will respond when conditions in the economy change,” said Dean Baker, Co-Director of the progressive Center for Economic and Policy Research.

Tricky Time

The Washington native would be taking over the Fed at a tricky time. Inflation is well below the central bank’s 2 percent target, while asset prices are at levels considered lofty by policy makers. Trump’s push for a massive tax cut to supercharge growth, in an economy that already has historically low unemployment, won’t make the task easier. 

Powell hasn’t played a prominent public role in the formulation or explanation of policy, but has been supportive of Yellen’s strategy of gradually increasing interest rates -- an approach he’s likely to maintain as Fed chair. He did voice private skepticism about the third round of quantitative easing launched by then-Chairman Ben S. Bernanke in 2012, but ended up voting in favor, according to Bernanke’s memoir. 

Powell won’t be deploying a battery of economic theory to these questions. He’d be the first holder of the job since Paul Volcker in the 1980s not to have a Ph.D. in economics.

Monetary ‘Science’

Some see his lack of an economics degree as a hole in his resume.

“The chair should be an economist by training,” said former Philadelphia Fed President Charles Plosser, himself a Ph.D. economist. “The nuance of monetary policy and the science of monetary policy have become much more complex and subtle and difficult.” 

Powell faced similar skepticism from staffers when he joined the Fed in 2012. He won them over by displaying a willingness to dig deep into complexities, an ex-Fed official said. He was known for showing up at meetings carrying a huge binder full of materials.

While Powell has never dissented from a monetary-policy decision, a former colleague disputed suggestions that he was a yes-man. “There has been a recent tradition of governors not dissenting,” said ex-Dallas Fed President Richard Fisher. “That doesn’t mean he didn’t add an important dimension to the discussion.”

A former Treasury undersecretary, Powell spearheaded the Fed’s response to the 2014 “flash crash” in U.S. government debt, and the overhaul of the flawed London Interbank Offered Rate benchmark. Until recently, he presided over four of the Fed Board’s seven committees, handling such unglamorous duties as overseeing the financial payments system.

“He has taken on tasks that the other governors didn’t want,” said Fisher. “He now really understands what makes the place tick.”

‘Business Head’

Powell also oversaw the Fed’s 12 regional banks, an experience that would serve him well as he works with their presidents to fashion a consensus on monetary policy.

“He brought a very good business head to all the nitty-gritty questions we had to deliberate over,” former Atlanta Fed President Dennis Lockhart said.

Powell, who goes by ‘Jay’, spent much of his career outside government in finance -- first at investment bank Dillon Read & Co. and then at private-equity firm Carlyle Group, where he set up an industrial unit and was seen as a prudent and picky investor.

“Jay was somebody who had experience in both business and in government and also had a legal background,” said Carlyle co-founder David Rubenstein. “That’s a rare combination.” 

It helped make him a multi-millionaire -- like many Trump nominees. Powell’s 2016 financial disclosure form listed assets of as much as $55 million.

‘Fantastic Job’

Powell’s experience in official Washington dates back to President George H. W. Bush’s Treasury Department -- where he served alongside Randal Quarles, who beat Powell to get the nod for the Fed supervisory post in July. It was in those years that he saw a financial emergency firsthand. 

Salomon Brothers had tried to corner a Treasury debt auction using phony bids in 1991, and faced a potential bank run that summer. On vacation in Cape Cod, Powell spent a weekend conferring by phone with officials including Fed Chairman Alan Greenspan and Treasury Secretary Nicholas Brady. He then acted as a go-between with Salomon investor Warren Buffett.

Powell “did a fantastic job,” Brady said. “I relied on him heavily.” Salomon survived the Monday market opening. 

Harvard University professor Robert Glauber, who worked with Powell at the Treasury, said he valued the investment banking know-how that his former colleague brought to the job. “He’s not a person with sharp elbows,” added Glauber. “People respected and trusted him.”

True Believer?

Powell, who has an undergraduate degree in politics from Princeton University and a law degree from Georgetown, saw another crisis up close in 2011, when a budget deadlock raised the specter that the U.S. may not meet its debt obligations. From outside government -- he was working, essentially gratis, at a Washington think-tank -- Powell played a key behind-the-scenes role in helping to avert a default.

His work caught the attention of President Barack Obama, who tapped Powell for the Fed board. The Obama link has raised suspicions among some Republicans, who question whether Powell is a true believer in the deregulatory agenda -- a skepticism fueled by the Fed governor’s preference for keeping many of his misgivings in-house. That said, Powell would be all-but-certain to win Senate confirmation, as Republicans are unlikely to oppose the pick of their own party’s president.

Married with three children, Powell has a reputation as a bit of an athlete. At Carlyle, he was known to spend lunch hours cycling, and he still regularly bikes the eight miles to work at the Fed from his home in Chevy Chase, Maryland.

“He complains about a bad back, then beats the hell out of me on the golf course,” Lockhart said.

Powell also has an unusual ability to repeat people’s sentences back to them -- backwards. It shows how well he listens, according to those who know him.

He displays signs of a sense of humor, too. In Powell’s current office at the Fed, pride of place goes to a hat given him by a Wisconsin senator -- a giant triangle of cheese-shaped yellow foam, the kind that fans of the Green Bay Packers football team wear to their games.

It’s not clear whether he’ll take it down the corridor if the Senate confirms him to the biggest job in the financial world.

To contact the reporter on this story: Rich Miller in Washington at [email protected]

To contact the editors responsible for this story: Brendan Murray at [email protected]

Ben Holland, Alister Bull

© 2017 Bloomberg L.P

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