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Questions about Powell’s appointment as FED chairman

fed chairman, new fed chairman, jerome powell, janet yellen

fed chairman, new fed chairman, jerome powell, janet yellenTrump's decision to appoint Powell as Fed chairman raises more questions than it answers in the area of interest rates, the adoption of an economic model, capacity to deal with external shocks, deregulation and subsequent appointment.

Jerome Powell will be the new Fed chairman and he will take Janet Yellen's seat as of February 2018. It will be interesting to see how Powell will be able to maintain independence from the Federal Reserve in the coming months, considering his relationship with the White House who wants to manage everything.

Trump is very critical of current Fed management and interest rate decisions. Will Powell follow the directions of the White House on these points? This is also an important aspect of Federal Reserve's credibility. It will also be interesting to know what its reactions will be if the Republican Congress will ask the Federal Reserve to adopt an economic model based on a rule such as that based on the Taylor Rule. Bernanke and Yellen have refused to do so, which will be Powell's position? If the Federal Reserve decides to follow the Tayor type rule, it will no longer be independent.

Powell's appointment as chairman of the Fed has not been a surprise. Ever since his appointment as a board member in 2012, it gradually became absolutely clear he was not a man of a breakup. Powell cannot be considered a character who decides at the end of the day what to do. The future that awaits him, however, is more complicated: it will be easy if nothing happens on the market. But what if there will be shocks ahead of him against which he will have to take quick decisions? His lack of knowledge of macroeconomics could be problematic on this level, regardless of his team's expertise. A challenge to be met is to understand how he will lead the deregulation process. Is it already been reached the limit or not? I'm convinced that Powell's monetary policy will not be a continuation than that of Yellen.

It is evident that Powell's appointment raises more questions than it answers, but his monumental task will be to normalize the monetary policy strategy and limit the probability of a new crisis. One last point to remember is that the Fed still has three empty seats on seven on the table. Donald Trump has already appointed two members: Ronald Quarles, confirmed by the Congress, and Powell, the future chairman. With three new appointments (and they could be four if Yellen decides to leave his place prematurely), the board will behave differently from what we saw during the presidencies of Bernanke and Yellen and at that point, Powell's role will be more important.

 

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