A Consensus-Builder at the Fed Faces Emerging Uncertainties
When Jerome Powell emerged as the front-runner to succeed Janet Yellen as Federal Reserve Chair, he was quickly pegged as a moderate “continuity candidate.” A low-profile, but hard-working, member of the Federal Open Market Committee since 2011, he had supported Yellin’s course of slow-but-steady interest-rate increases as the economy gradually recovered from the great recession.
But now in his first month as Fed Chair, Powell is facing new uncertainties that had only begun to emerge under his predecessor. The combination of rising wages, a full-employment economy, fifteen straight quarters of GDP growth, a monster tax cut, and stock-market indexes at historic highs are a tried-and-true prescription for inflation. Add in last week’s stomach-churning volatility in the financial markets, and you’ve got a set of challenges that would test even the most experienced Fed Chair.
This month’s Capital Advisors research report takes an in-depth look at the new makeup of the Federal Open Market Committee and the changes we might expect with Powell at the helm. Our conclusion is that Powell will strive to be more of a consensus builder than Yellin or Ben Bernanke. In addition to leaning on the collective expertise of his board members and staff, he has said he wants to promote more “transparency” with respect to Fed deliberations. Among other things, he’s expected to start offering more detail on the underlying factors affecting the balance of risks to the economy that the Fed takes into consideration before it raises or lowers interest rates.
More information and a clearer picture of the Fed’s outlook for 2018 will be welcome to anyone who follows fixed-income asset markets. If you’re an institutional cash manager whose job depends on a deep understanding of what the Fed may have in store for us in the coming quarters, be sure to download our report, A Changing of the Guard at the FOMC.