Powell Lauds Economy's Progress, Vows Vigilance on Market Risks

(Bloomberg) -- Jerome Powell, President Donald Trump’s pick to lead the Federal Reserve, talked up the strength of the U.S. economy as he pledged to guard against financial market risks.

“In the years since the global financial crisis ended, our economy has made substantial progress toward full recovery,” Powell said Thursday during a ceremony in the White House Rose Garden with Trump. “By many measures we are close to full employment, and inflation has gradually moved up toward our target.”

Powell’s nomination to succeed Janet Yellen, whose term as Fed chair expires Feb. 3, is subject to Senate confirmation. Mike Crapo, chairman of the Senate Banking Committee, separately said his goal was to have Powell confirmed by year-end.

Powell revealed little of his thinking on what, if any, changes he might seek at the Fed, opting instead to pledge to pursue the goals set for the central bank by Congress.

“Inside the Federal Reserve, we understand that monetary policy decisions matter for American families and communities,” Powell said. “I strongly share that sense of mission and am committed to making decisions with objectivity, based on available evidence and in the longstanding tradition of monetary policy independence.”

Not that anyone expects a shake-up. Powell is viewed by many financial market players as likely to continue on the path of gradual interest-rate hikes set by Yellen.

“I would refer to him as a safe pick for continuity and probably the least amount of disruption you’d expect from any of the picks,” said Luke Tilley, chief economist at money manager Wilmington Trust Corp.

A Fed governor since 2012, Powell, 64, supported Yellen’s policy of only gradually raising interest rates in the face of robust jobs growth, and has supported only modest adjustments to the raft of banking regulation implemented in the wake of the 2008-09 financial crisis.

"In the next 12 months or so, I think he continues to plow forward and move rates up at a once-per-quarter pace,” said Kevin Cummins, an economist at NatWest Markets in Stamford, Connecticut.

Stronger Banks

While many Republican lawmakers are hoping Powell will help them roll back post-crisis banking regulation they believe is stifling economic growth, he made a point of saying the financial system had been made safer.

“While post-crisis improvements in regulation and supervision have helped us to achieve these gains, I will continue to work with my colleagues to ensure that the Federal Reserve remains vigilant and prepared to respond to changes in markets and evolving risks,” he said.

Powell and Trump each made a point of saluting Yellen, who inherited a fragile post-crisis economy in 2014 and guided it carefully through four years of steady, if unspectacular growth.

“We are grateful for her total commitment to public service,” Trump said.

On Yellen’s watch, the U.S. economy added about 9 million jobs as it recovered from the Great Recession, lowering unemployment to 4.2 percent from 6.6 percent, while inflation averaged 1.1 percent.

Yellen issued a brief statement congratulating Powell.

“He’s got the support of Yellen, that was clear, and I think it’s just going to be a pretty smooth transition,” said Scott Brown, chief economist at Raymond James Financial in St. Petersburg, Florida. “The Fed’s likely to remain on the same track of gradual rate increases, but also being data-dependent.”

The ceremony took place just as House Republicans at the other end of Pennsylvania Avenue began unveiling plans for major changes to the U.S. tax laws, a package that will present Powell with his first policy test.

Economists will likely be divided over how the Fed should respond to the tax plan. Much will rest on whether Powell believes the package can lift non-inflationary growth by encouraging businesses to invest more in their operations. In that case, he may argue for no reaction in monetary policy.

If, however, he decides the plan will do little more than spur consumption in the short run, while adding to price pressures and the risk of asset bubbles, Powell may favor raising interest rates in response, on top of any hikes he feels are appropriate amid a tightening labor market.

Fed officials forecast raising rates again in December following hikes in March and June, quarterly projections they updated in September show, with three additional moves penciled in for 2018.

The U.S. economy expanded at an annual pace of 3.1 percent in the second quarter and 3 percent in the third, making for the best six-month performance since 2014.

Senior Trump administration officials, speaking on condition of anonymity, said the president called Powell on Tuesday to offer him the job, and phoned Yellen earlier Thursday to inform her of his decision. The same officials said the president didn’t discuss interest rates or where monetary policy should go with any of the candidates he interviewed for the Fed job.

Powell, they said, made the best overall impression on Trump, showing good judgment and a unique combination of government and private sector experience.

The president had no problem with the way Yellen had lead the central bank during her four-year term, they added, and she was on his short-list until a few days ago. Stanford economist John Taylor was the third person whom he kept in the mix until opting to pick Powell.

The officials said there would be no announcement this week on whom Trump would nominate as vice chair to Powell, one of several openings on the seven-seat Fed Board in Washington that Trump will have an opportunity to fill.

--With assistance from Kevin Cirilli

To contact the reporters on this story: Christopher Condon in Washington at ccondon4@bloomberg.net, Jennifer Jacobs in Washington at jjacobs68@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull

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