Will the new Chairman of the Federal Reserve change anything?

No.

But that’s only the short answer.

Donald Trump has picked the new chair of the Federal Reserve, one of the most prestigious and significant positions in the economic world. The happy winner is Jerome Powell, who has been a member of the Federal Reserve Board of Governors since 2012.

Powell is considered to be a “monetary dove.” Such people are generally more in favor of the expansionary monetary policy, including low-interest rates, while hawks are inclined to favor a tight monetary policy, thus tending to lead to an increase in interest rates. Powell was also considered to be a status quo candidate, not necessarily someone you would expect Donald Trump to favor.

How much influence does the chair have?

The chair is the chairman of the board of directors of the Federal Reserve. While the chair can outline the policy of the bank, this person is only one of many economists debating resolutions together.
Moreover, most decisions are straightforward. The capital markets are becoming extremely accurate at projecting changes in interest rates.

Not many can fill this position, which requires professionalism and a deep understanding of economic and financial methodology as well as a knowledge of economic history. Of those who can perform well in this job, however, the options are pretty much the same. It doesn’t really matter who hikes the rates.

The new rates hiker

What’s interesting about the position?

Aside from choosing one of the most important people in the economic and financial world, what’s most interesting is how Donald Trump has changed. Before he became president, Donald Trump used to say that the current chair, Janet Yellen, should be ashamed for what she was doing to the U.S. by keeping interest rates low. He even doubted the Federal Reserve’s independence and claimed that Yellen was extremely political and doing whatever she could to help President Obama by delaying interest rate hikes before he left office.

Trump’s perspective has now turned upside down, and he probably wants to delay interest rate hikes until his next term. This is too far away, though, so Trump has chosen a monetary dove, who will raise interest rates slowly and moderately without causing any dramatic changes in the economy.

What we can expect?

A moderate hike in interest rates should follow, just as Janet Yellen did during the last two years. The American economy and other major economies are still not ready to give up all the cheap money around. Eventually, it will happen, but nobody wants to see it on his shift, and in that sense, Trump is no different from Obama.

 

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