Fed Chairman nominee Powell likely faces smooth path to confirmation

By Kate Davidson and Ryan Tracy Business Leaders Dow Jones Newswires

Federal Reserve governor Jerome Powell heads to Capitol Hill on Tuesday for what could be one of the least contentious confirmation hearings for a Fed chair nominee since the financial crisis.

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The Senate Banking Committee is considering Mr. Powell's nomination to succeed Fed Chairwoman Janet Yellen when her term as chief expires in February.

For years after the crisis, committee Republicans questioned Ms. Yellen and other Obama administration Fed nominees, at times sharply, about the central bank's unconventional efforts to stimulate the economy and its stricter regulation of the financial system.

But Mr. Powell, a Republican who served in the George H.W. Bush administration, is likely to face a relatively smooth path.

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While some Republicans have expressed concerns about Mr. Powell's support for Ms. Yellen's policies, he was nominated by President Donald Trump -- their party's leader -- and no committee member has signaled plans to oppose the pick.

Democrats, meanwhile, voted almost unanimously to confirm Mr. Powell in 2012 and 2014 when he was nominated to the Fed board by President Barack Obama. They also have defended the Fed from GOP criticism of its postcrisis policies under Ms. Yellen.

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"I think it's going to be incredibly difficult for members of either party to attack Powell on his record, because they voted for him twice before," said Isaac Boltansky, an analyst at Compass Point Research and Trading.

Still, Mr. Powell likely will face questions on the future of Fed monetary and regulatory policy, particularly the path of interest rates in an economy gaining steam.

Fed officials in September penciled in one more quarter-percentage-point interest rate increase this year, three in 2018 and two in 2019. They also lowered their estimate of where they see interest rates settling in the long run, indicating the likely endpoint for this series of rate rises.

Lawmakers will want to draw Mr. Powell out on whether he expects to stick to this path or perhaps step up the pace to prevent the economy from overheating.

Mr. Powell has repeatedly supported the current Fed consensus to raise rates gradually in coming years.

The Fed "has been patient in raising rates, and that patience has paid dividends," Mr. Powell said in a June 1 speech to the Economic Club of New York. "While the recent performance of the labor market might warrant a faster pace of tightening, inflation has been below target for five years and has moved up only slowly toward 2%, which argues for continued patience, especially if that progress slows or stalls."

Lawmakers will likely press Mr. Powell on how the Fed is likely to respond to a tax overhaul Republicans aim to enact before year's end, particularly if it stimulates faster economic growth and adds to the national debt, as some analysts project.

Mr. Powell will certainly be asked about his regulatory plans. In practice, he may defer on those policies to Fed Vice Chairman for Supervision Randal Quarles.

Mr. Powell would have a say over those policies if he chooses: He will chair the Fed governing board in charge of setting rules of the road and approving regulatory decisions, such as whether banks pass or fail annual stress tests.

Republicans want him to commit to deregulation and Democrats want to be reassured that he won't undermine the regime he helped build during the Obama administration. He would have to walk a fine line to please both camps.

Mr. Powell said in June the Fed should re-evaluate some parts of the postcrisis regulatory regime including bank stress tests and the Volcker rule trading ban.

At times, the former private-equity executive has expressed concerns the Fed was going too far in restricting Wall Street. In February 2015, he said regulators should "learn, but not overlearn, the lessons of the crisis." Earlier this year, he shepherded a Fed proposal to reduce regulatory requirements applying to bank boards of directors.

Since Mr. Trump's election, Mr. Powell has become a more vocal critic of the Obama era regulatory regime, saying stress tests need to be more transparent and the Volcker rule is too complicated. Lawmakers may ask him to explain those positions in more detail.

But he also opposes some proposed relaxation of the rules, such as lowering risk-based capital requirements that tax loans and investments regulators view as risky.

"I don't think what we're talking about here amounts to broad deregulation," Mr. Powell said in June. "I think it amounts to making regulation more efficient, protecting the important gains we've made [since the financial crisis]."

Those views are in line with those of Ms. Yellen and former Fed governor Daniel Tarullo, the central bank's leader on regulatory policy from 2009 until earlier this year. Mr. Powell has never voted against Ms. Yellen or Mr. Tarullo on a Fed regulatory decision -- a record Republicans may press him to explain.

Write to Kate Davidson at kate.davidson@wsj.com and Ryan Tracy at ryan.tracy@wsj.com

(END) Dow Jones Newswires

November 27, 2017 05:14 ET (10:14 GMT)