Trump to Tap Fed's Jerome Powell for Central Bank Chief -- Update

By Kate Davidson, Peter Nicholas and David Harrison Features Dow Jones Newswires

The White House has notified Federal Reserve governor Jerome Powell that President Donald Trump intends to nominate him as the next chairman of the central bank, according to a person familiar with the matter.

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The president spoke with Mr. Powell on Tuesday, according to another person familiar with the matter who couldn't describe what they discussed.

Mr. Trump had settled on Mr. Powell by Saturday, but people familiar with the process had cautioned that he could change his mind. The president plans to formally announce the decision Thursday before he leaves for a trip to Asia on Friday.

Reached by phone Wednesday, both Mr. Powell and Fed Chairwoman Janet Yellen declined to comment. A Fed spokeswoman also declined to comment.

If confirmed by the Senate, Mr. Powell would succeed Ms. Yellen, whose four-year term as Fed chief expires in early February. She was one of five finalists for the position, along with Stanford University economics professor John Taylor, former Fed governor Kevin Warsh and National Economic Council Director Gary Cohn.

Mr. Taylor and Mr. Warsh didn't respond to requests seeking comment Wednesday.

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Mr. Trump said in a video last week that he had "somebody very specific in mind" for the job.

"It will be a person who hopefully will do a fantastic job," Mr. Trump said in a video posted to Instagram, adding, "I think everybody will be very impressed."

Mr. Powell would likely continue the Fed's current cautious approach to reversing the central bank's crisis-era stimulus policies as the economy expands.

That would mean gradually raising short-term interest rates in quarter-percentage-point steps through 2020 while slowly shrinking the Fed's $4.2 trillion portfolio of Treasury and mortgage-backed securities it purchased to lower long-term rates.

"The economy is as close to our assigned goals as it has been for many years," Mr. Powell said in June. If it continues growing as expected, "I would view it as appropriate to continue to gradually raise rates."

Fed officials began raising their benchmark federal-funds rate in December 2015 after holding it near zero for seven years following the financial crisis. They voted in June to lift rates to a range between 1% and 1.25% and in October started the process of slowly shrinking its portfolio of bonds purchased during and after the financial crisis to stimulate the economy.

Officials expect one more rate increase this year. But they indicated in September such increases are likely to end at a lower point than they had previously projected -- at a longer-run level of around 2.75%, considerably lower than where officials have stopped raising rates in the past.

Mr. Trump told The Wall Street Journal in July, "I'd like to see rates stay low."

The Fed on Wednesday left short-term interest rates unchanged, but signaled it would consider lifting them before year's end amid signs the economy is gaining momentum.

During his five years at the Fed, Mr. Powell has been a reliable ally of Ms. Yellen. He has never dissented on a Fed monetary or regulatory policy vote and in speeches hasn't deviated far from the board's consensus.

Where he could lead a shift is on regulatory policy. He has advocated loosening some of the financial rules adopted by the Fed and other agencies since the crisis, a position that meshes with Mr. Trump's deregulatory agenda.

Mr. Powell has suggested softening the Volcker rule barring banks from using their own money to make risky bets and easing some bank stress tests. He also has endorsed reviewing some of the supervisory duties imposed on banks' boards of directors to prevent them from being burdened with "an ever-increasing checklist."

"More regulation is not the best answer to every problem," Mr. Powell said in a speech in early October.

"To some extent he offers Trump the best of both worlds. You get broadly speaking continuity of Yellen's careful and relatively dovish approach to monetary policy but with somebody who is a card-carrying Republican and who is significantly more inclined to revisit some of the postcrisis regulations," said Krishna Guha, vice chairman at Evercore ISI and a former New York Fed official.

Karen Petrou, managing partner of the financial-services consulting firm Federal Financial Analytics, said Mr. Powell's recent remarks on regulation "were certainly much more flexible than [Ms. Yellen] has been."

Write to Kate Davidson at kate.davidson@wsj.com, Peter Nicholas at peter.nicholas@wsj.com and David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

November 01, 2017 16:59 ET (20:59 GMT)