Mr. Under the Radar: Jerome Powell, Trump's -2-

By Nick Timiraos and David Harrison Features Dow Jones Newswires

When a business-school student sought out Jerome Powell several years ago for career advice, Mr. Powell, President Donald Trump's likely pick to become the 16th chairman of the Federal Reserve, offered his philosophy on getting ahead.

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His advice: Keep your head down and work hard, according to the student, Sean Gillispie, today a software product director in the Washington area. Mr. Powell told him he would be surprised "how many otherwise competent people self-sabotage with poor behavior," Mr. Gillispie recalls.

In recent years, there have been two kinds of Fed chairmen: commanding personalities such as Paul Volcker and Alan Greenspan, whose views on inflation and interest rates dominated central banking from the 1980s through the mid-2000s; and the consensus-driven leaders, Ben Bernanke and Janet Yellen, who guided the central bank toward more open decision-making and de-emphasized the power of the chairman.

Mr. Powell, judging by his nearly 40-year career in government, law and banking, is likely to be in the latter group. That means a Powell Fed might look a lot like it has since Mr. Greenspan retired in 2006.

Such continuity would be welcome in the markets, which don't like uncertainty, and at the Fed, one of the world's most powerful economic policy-making bodies. It also could please Mr. Trump, who has spoken approvingly of record stock prices and declining unemployment.

His appointment could also cause friction within the Republican Party, where many rank-and-file members want to see the Fed roll back a decade of central-bank activism sparked by the financial crisis.

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In the weeks leading up to the selection, Sen. Pat Toomey (R., Pa.) said he thought the Fed should "move in a different direction."

The president opted against offering the job to two candidates more popular with the Republican establishment -- former Fed governor Kevin Warsh and Stanford University economist John Taylor -- after advisers raised concerns that their past support for higher interest rates could unsettle Wall Street, according to two people familiar with the deliberations.

"I would be surprised if [Mr. Powell] walked away at the end of his term with a huge stamp of reshaping the Fed," says Charles Plosser, who as president of the Federal Reserve Bank of Philadelphia until 2015 worked closely with Mr. Powell. "He's not likely to lead Federal Reserve reform and innovation on monetary policy, but that does not mean he won't be a good chair."

Unlike Ms. Yellen and Mr. Bernanke, Mr. Powell doesn't hold a degree in economics -- which would make him the first chairman since the late 1970s without such a credential. Although he has worked as an investor, lawyer and bank regulator, he has no experience leading a large organization.

Because Mr. Powell isn't an economist, he might be more likely to rely on Fed economists and less likely to challenge conventional theory. Unlike some other Fed officials, he hasn't expressed skepticism about the mainstream view, called the Phillips curve, that when unemployment dips below a particular level it will drive up wages and inflation.

Mr. Powell, who is known as Jay, declined to comment for this article.

The Fed is no simple bureaucracy. It has a seven-member board, 12 regional banks, a secretive decision-making process and 2,700 employees involved in interest-rate decisions, bank regulation, managing the nation's currency circulation. It also serves as the Treasury's fiscal agent in managing the nation's debt.

It is in the process of raising short-term interest rates from near-zero levels and of gradually winding down a $4.2 trillion portfolio of mortgage and Treasury securities built up during and after the financial crisis. Mr. Powell was part of a group in 2013 that pressed Mr. Bernanke to wind down the bond-purchase programs, although he has never dissented in 44 meetings on the Fed board.

Mr. Powell's most notable mark on monetary policy at the Fed was his involvement in bond-buying phase out. Worried that investors believed the programs would continue indefinitely, he joined with two other Fed governors, Betsy Duke and Jeremy Stein, to persuade Mr. Bernanke to scale the program back. The effort was typical of Mr. Powell's style -- conducted almost entirely behind the scenes and with little fanfare.

The initial effort was rocky. Bond investors grew frightened, sparking a selloff known in markets as the "taper tantrum." But they eventually settled and the Fed is now gradually reducing its portfolio. Mr. Powell later conceded that his concerns about continuing the programs were overblown.

Mr. Powell's views on economic and monetary policy sync up with Ms. Yellen and Mr. Bernanke. He has supported a slightly lighter touch on financial regulation but hasn't backed wholesale efforts to dismantle overhauls implemented following the 2008 financial crisis. In testimony before lawmakers this summer, he said those rules made the financial system "substantially stronger and more stable."

"Jay is certainly not going to change course in any radical way, but he's very smart. He will react to whatever shifts are out there," says Glenn Hubbard, dean of the Columbia Business School and an occasional adviser to Republican presidential candidates, who has known Mr. Powell for 25 years.

A Washington native, Mr. Powell, 64 years old, grew up the second of six children in suburban Chevy Chase, Md., where he still lives. His father was a lawyer; his mother worked part time for the Republican National Committee.

Like his father, he attended the Georgetown Preparatory School, a Jesuit high school. His parents were active in civic and charitable causes, many centered around their church. Mr. Powell also has served on the boards of educational and environmental groups.

Matthew McCormick, an economist who has worked for several federal agencies, recalls seeing Mr. Powell last year carrying a car seat and luggage for someone else's family trying to make a tight connection at Reagan National Airport in Arlington, Va.

Mr. Powell has a somewhat conventional Washington résumé. He went to Princeton University and Georgetown Law School. He worked for several years as a lawyer in New York before joining investment bank Dillon, Read & Co. In 1990, he returned to Washington to become assistant secretary for domestic finance in President George H.W. Bush's Treasury Department, following the bank's former chairman, Nicholas Brady, who was Treasury secretary. He later was promoted to undersecretary for domestic finance, charged with untangling a wave of bank failures.

One Sunday morning in January 1991, Mr. Powell joined other regulators in a conference room to hash out how to deal with the collapse of the Bank of New England, at the time one of the region's largest banks. To prevent a bank run, the group decided to guarantee all deposits, no matter how large they were, Mr. Powell recalled in a 2013 speech.

Later that year, Mr. Powell helmed the government's response to the Treasury auction bid-rigging scandal by Salomon Brothers, a major investment bank. Mr. Powell ironed out an agreement that imposed severe penalties against the bank, which had admitted making unauthorized bids, without forcing it into bankruptcy, and arranged for investor Warren Buffett to become the firm's chairman.

"It was a very ticklish, tricky thing, and it was exceptionally well handled at the end," says John Dugan, who served under Mr. Powell at Treasury.

The episodes of the early 1990s, which showed Mr. Powell to be relatively pragmatic, shaped his regulatory worldview, says Mr. Dugan. "He understands there's a role for regulation, and he's not at one extreme or the other," says Mr. Dugan, who was U.S. comptroller of the currency from 2005 to 2010.

After Mr. Bush left office, Mr. Powell returned to banking in New York. In 1997, he moved back to Washington and joined the Carlyle Group, a private-equity investment firm, where he founded and led the firm's industrial group within its U.S. buyout fund. It was lucrative work. In financial disclosures earlier this year, Mr. Powell, who drives a Tesla, reported assets worth between $19.7 million and $55 million.

After nearly two decades in the private sector, colleagues say, Mr. Powell was eager to return to public service but wasn't sure how or where to make his mark. He went to work at the centrist Bipartisan Policy Center, where he didn't draw a salary.

"This was getting his feet back into the water and figuring out where he wanted to get engaged," says Shai Akabas, an economist at the center who worked closely with Mr. Powell.

He landed at the Fed almost by accident.

In a closed-door meeting with House Republicans in July 2011, he challenged his own party over its standoff with President Barack Obama about authorizing an increase in the national-debt ceiling. He warned Republican lawmakers about the harm that would fall on retirees, veterans and other Americans if Congress didn't authorize an increase in government borrowing, according to two people who attended.

Obama Treasury Secretary Timothy Geithner heard about his take-your-medicine stand and asked colleagues if Mr. Powell might solve another problem they were having, according to several people involved in the deliberations. The administration had been unable to get Senate Republicans to confirm its pick for a vacancy on the Fed's seven-member board of governors, and officials were struggling to come up with names of a Republican who might help break the impasse.

Impressed after their meetings with Mr. Powell, officials in the White House recommended his nomination for the job. The Senate confirmed his nomination in 2012, and he was reappointed two years later.

Many Republicans weren't thrilled, with 20 voting against him in 2012 and 23 voting against him in 2014.

Some GOP lawmakers have been ruffled by Mr. Powell's unwillingness to publicly criticize the Fed's regulatory agenda, which included implementing substantial provisions of the 2010 Dodd-Frank Act.

That reluctance "just left some people flat," says Rep. French Hill (R., Ark.), who remains friends with Mr. Powell after they worked together in the Bush administration during the early 1990s.

Mr. Hill says he can understand why some colleagues wish Mr. Powell had been more outspoken, but adds it isn't Mr. Powell's style to air his concerns publicly. "It's not fair to assume what Jay Powell said or didn't say in private," he says. "He kept those views to himself."

One person who has worked with several Fed officials in recent years says he often heard about petty personal rivalries or feuds between board members, but these people never had a bad word for Mr. Powell.

"He is remarkably undogmatic," says Jeremy Stein, a Harvard University economics professor, Democrat and former Fed governor whose office was adjacent to Mr. Powell's. "He listens more than he talks."

Mr. Powell has held several different roles on a board that has been plagued with vacancies in several years. He earned respect from colleagues for tackling unheralded operational tasks and technical issues, including managing payment-processing systems. He also boosted morale this summer when he oversaw the implementation of a relaxed summer dress code.

--Harriet Torry contributed to this article.

(END) Dow Jones Newswires

November 02, 2017 13:36 ET (17:36 GMT)