Will Obama Nominated Federal Reserve Appointee Be Similar To Janet Yellen?

Posted by Dirk Watters on

Economists think the former Obama appointed governor of the Federal Reserve Jerome Powell will have a similar monetary policy to Democrat Janet Yellen. In fact, they are banking on it. That is not an unreasonable view. Mr. Powell isn't even an economist with strongly held views and he's never deviated publicly from Ms. Yellen on interest rate and economic issues. For many publicly vocal economists, that points to continuity. A new paper says taking on the mantle of Federal Reserve can have unexpected effects on individuals. Political imperatives and institutional factors often overrun policy makers' long-held views, says Alexander Salter of Texas Tech University. After studying the careers of Fed chairmen Arthur Burns, Alan Greenspan and Ben Bernanke, academics write "central bankers' behavior is best explained as a result of institutional adaptation, not personal motivation such as pre-existing beliefs." What these individuals thought before becoming Fed chair and what they did when they became the leader is incredibly in juxtaposition. Simply put, Federal Reserve chairs adapt to their new environments drastically. For example, the paper notes Mr. Burns, who led the Fed from 1970 to 1978, came into the central bank with strong views about the government's role in creating inflation.

He then succumbed to political pressures and followed overly dovish policies that created one of the worst inflationary chapters in U.S. history.

Let's not forget about Alan Greenspan, he led the Fed from 1987 to 2006 despite once calling its creation a "historic disaster."

He thought the dollar should be backed by a commodity such as gold, but never took steps to do anything about it once in power.

Meanwhile Ben Bernanke embraced financial sector bailouts that were more expansive than his academic positions would have supported, the authors write. Jerome Powell's complete lack of an academic record on any economic issue makes his true views impossible to come by. What we do know is Mr. Powell is an Obama appointee to the Fed and by many accounts is used to rigging the economy. For example, Jerome Powell's background as a private lawyer and banker of the private equity juggernaut  "Carlyle Group LP" paid $115 million to settle a U.S. lawsuit accusing it of conspiring on takeovers prior to the financial crisis according to Reuters news. His firms wrongdoing settlements now have totaled $590.5 million according to the U.S. District Court in Boston. Like other defendants, it did not admit wrongdoing. Maybe because Mr. Powell actually believes he didn't do anything wrong as a financial private equity tycoon and the richest Fed Chair in recent memory. If so, that would even be more troubling for conservative minded investors.

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