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Trump Picks Powell To Be Next Fed Chair, USDJPY Slides

According to The Wall Street Journal, President Trump has picked Jerome Powell to be the next Federal Reserve Chair.

The White House has notified Federal Reserve governor Jerome Powell that President Donald Trump intends to nominate him as the next chairman of the central bank, according to a person familiar with the matter.

The president spoke with Mr. Powell on Tuesday, according to another person familiar with the matter who couldn’t describe what they discussed.

Mr. Trump said in a video last week that he had “somebody very specific in mind” for the job.

“It will be a person who hopefully will do a fantastic job,” Mr. Trump said in a video posted to Instagram, adding, “I think everybody will be very impressed.”

Modest reactions for now in USDJPY and gold...

However, WSJ notes that while President Trump had settled on Mr. Powell by Saturday, but people familiar with the process had cautioned that he could change his mind.

WSJ summarizes Powell's views as follows...

On Interest Rates

Mr. Powell, 64 years old, has backed Ms. Yellen’s policy of gradually raising interest rates if the economy improves as projected. In recent public remarks he has sounded an optimistic note, saying he expects inflation to move up to the Fed’s 2% target, economic growth to remain steady and the unemployment rate to fall further. “I would view it as appropriate to continue to gradually raise rates,” he said in June.

On Shrinking the Fed’s Portfolio

Mr. Powell in September voted in favor of beginning the yearslong process of winding down the central bank’s $4.5 trillion portfolio. Like Ms. Yellen, Mr. Powell has said the Fed could resort to new rounds of asset purchases in another crisis if the economy needs more stimulus. Putting new assets on the Fed’s balance sheet should be an option “only in extraordinary circumstances,” he said in February.

On Monetary Policy Rules

Mr. Powell has joined several of his Fed colleagues in warning against relying too heavily on mathematical rules such as the so-called Taylor Rule to guide monetary policy. That could put him at odds with congressional Republicans who have pushed the Fed to adopt such a formula in an attempt to make Fed policy-making more transparent and predictable.

“Simple policy rules are widely thought to be both interesting and useful, but to represent only a small part of the analysis needed to assess the appropriate path for policy,” he said February. “I am unable to think of any critical, complex human activity that could be safely reduced to a simple summary equation.”

On Dodd Frank

Mr. Powell has expressed willingness to ease some of the burdens imposed on financial institutions from the 2010 Dodd Frank law, a position that could appeal to the Trump administration.

Speaking before lawmakers in June, Mr. Powell said he was looking into softening the Volcker rule preventing banks for making overly risky bets with their own money. He also said it might be appropriate to ease some of the annual stress tests that big banks must perform. 

He has also called for revisiting new supervisory requirements imposed on bank boards of directors after the crisis. In his view, a board’s role “is one of oversight, not management.” That, he said in a 2015 speech, means boards should not be saddled with “an ever-increasing checklist.”

On Fannie Mae and Freddie Mac

Mr. Powell has called on Congress to overhaul the housing finance system, saying he’d like to see the country’s two large mortgage-finance firms, Fannie Mae and Freddie Mac, move out from under government conservatorship. More private capital in those firms would reduce the risk of a taxpayer-funded bailout in the event of a downturn, he said in a speech in July.

Although the Fed isn’t responsible for housing finance, it supervises some of the country’s largest lenders who frequently sell their loan to the two agencies. “No single housing finance institution should be too big to fail,” he said.

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Jerome Powell will be the first former investment banker to become Fed Chair (and first non-economics PhD in 40 years).

Powell, a Princeton graduate, was a lawyer in New York before he joined the investment bank Dillon Reed & Co. in 1984. He stayed there until he joined the Treasury Department in 1990. After he left Treasury, he became a partner in 1997 at The Carlyle Group (CG), the private equity and asset management giant. He left Carlyle in 2005.

He will also likely be the richest Fed head ever - Powell's assets are worth between $21 million and $61 million, according to financial disclosures which require officials to give a range in the value of their various holdings.