Come February, Janet Yellen will not be returning as Chair of the Federal Reserve. That title will belong to monetary moderate Jerome Powell, who was recently chosen by Donald Trump to replace Yellen. The pick is a confusing one; not only is the decision to replace a one-term Fed chair incredibly uncommon, Powell (dubbed “Mr. Ordinary” by the Wall Street Journal) has expressed views that are in line with Yellen just about all of the time and isn’t expected to drive the Fed in a new direction. Gradual rate hikes it has been, and gradual rate hikes it will remain.
The thinking behind this can only be speculative due to Trump’s inherent inconsistency and conflicting remarks on Yellen. During the campaign, Trump rebuked Yellen for creating a “false stock market” to bolster Obama’s legacy and said she should be “ashamed.” As President, he said Yellen was doing “very well…look at the markets.” So why replace her at all? I’ll leave that question for others to untangle.
While Powell’s experience as a lawyer and investment banker don’t illustrate a radical deviation from position requirements and qualifications, he’s still an aberration. His work in academia, when compared to past modern Fed chairs, is minimal, and he will be the first Fed chair since 1987 not to have a PhD in Economics.
In contrast, Janet Yellen spent her early life in academia before moving on to serve on the Council of Economic Advisors, Vice Chair of the American Economic Association, and as a voting member of the FOMC in 2009. In short, she has spent her entire professional career thinking about monetary policy and economic philosophy.
Yellen’s prudence and insight were superb, even among Fed chairmen. In 2007, as head of the San Francisco Fed, Yellen dubbed the housing sector “a 600-pound gorilla in the room” and stated: “A big worry is that a significant drop in house prices might occur in the context of job losses, and this could lead to a vicious spiral of foreclosures, further weakness in housing markets, and further reductions in consumer spending.”
After watching the economy collapse exactly as she had described, Yellen made a point of identifying overvalued markets, specifically listing the markets for leveraged loans and junk bonds in 2014 as being excessively priced. While any sensible Fed chair who had lived through the Recession would have made such a point, it’s difficult not to contrast her actions with those of her predecessors, the last two of which made numerous excuses as to why it was not in the Fed’s authority to reign in excessive stock trading and mortgage lending.
The economy under Yellen, by conventional measures, has been exceptional. Economist Dean Baker summarizes:
Under her tenure, the unemployment rate fell from 6.7 percent to 4.2 percent, the lowest rate in more than 17 years. The drop for African Americans and Hispanics has been even more impressive, with the unemployment rate for the former falling from 11.9 percent to 7.0 percent, and for the latter from 8.2 percent to 5.1 percent. As a result of this tightening of the labor market, wages are now rising up and down the income ladder, with those at the bottom seeing the largest gains. She accomplished all of this while keeping inflation well under control. In fact, inflation remains below the Fed’s target of a 2.0 percent average rate.
While Powell hasn’t indicated any strong deviation from Yellen policies, he lacks the credibility and qualifications that came with Yellen, making her replacement all the more unnecessary.
The largest point to be made regarding Powell’s nomination that it acts as yet another example of the President appointing someone quite unqualified to do their jobs. While numerous articles have been written about the worst offenders (Carson, Perry, and the like), some of the lower level picks are even more mind-boggling.
Sam Clovis, White House senior advisor to the USDA, spent his career as a far-right radio talk show host who bashed climate science and homosexuals. Assistant to the Secretary of Energy Sid Bowdidge was the branch manager of a car repair franchise. Victoria Barton, who now manages part of Congressional Relations for HUD, worked as a bartender.
USDA Confidential Assistant Christopher O’Hagan’s LinkedIn resume states that his only previous work experience (aside from working on the Trump campaign) was as a “Cabana Boy”, a job which entailed setting up furniture and serving drinks. His USDA colleagues, also appointed by Trump, include truck driver Nicholas Brusky and receptionist David Matthews. With this in mind, we should be relived the new Fed chair isn’t fresh out of work as a blackjack dealer or ATM repairman.
If he continues Yellen’s successful policies, there may be little reason for Powell to have his employment terminated on qualifications alone. But when his term ends in 2022, the Democratic president at that time should seriously consider it.
Photo credit: The White House/Creative Commons