It is tempting to label the president’s expected nomination of Jay Powell as the next Federal Reserve chairman as a non-event. He is almost as much of a continuity candidate as a re-appointment of Janet Yellen would have been, as an already serving governor first appointed by President Barack Obama.
His views on monetary policy, on which he is not a specialist, do not appear to have diverged from Ms Yellen’s in any significant way at any point since he joined the board, and he has never dissented from a decision of the Yellen Fed. It is monetary policy that matters most.
After feints in the directions of Gary Cohn, then Kevin Warsh and John Taylor, the president had suggested that he was interested in an appointment that would truly shake the Fed’s philosophy. This perceptibly shifted bond yields up a little, as investors braced for the prospect of a more hawkish Fed than previously expected. That apprehension unwound as the final leaks prepared the way for a Powell chairmanship. When the Wall Street Journal reported on Wednesday that the White House had told Mr Powell he had the job, the bond market barely flickered, and within a few minutes was back where it started.
Unfortunately, history has a nasty way of disguising momentous decisions. The Fed’s policy has moved into truly unprecedented territory under its last two chairs, with extraordinarily easy monetary policy, while Paul Volcker took the Fed into equally unprecedented territory in the early 1980s when he took rates up as far as 15 per cent in a bid to kill off inflation. None of those appointments excited the market much, either, and none of those Fed chairs were perceived as making a difference.
There are reasons to fear that Mr Powell is not quite the non-event that he appears. If Mr Powell is coupled with Mr Taylor, the best-known champion of a rules-based Fed, as his deputy, then the president will indeed have engineered quite a change in philosophy — a net swap of Taylor-for-Yellen would be a big deal.
Second, while Mr Powell breaks a long sequence of academic economists with an interest in monetary policy to head the central bank, he does bring a great interest in regulation to the post. Banking regulation has become, if possible, an even hotter political potato than monetary policy, and there is a long record of unpredicted consequences from changes to banking regulations.
And third, there is the matter of events. Ben Bernanke was an expert in the Depression and had decided views on how the Fed should counter a crisis, but he would never have put his measures into action if such a crisis had not come up on his watch.
Mr Powell arrives when there are fears, in roughly equal numbers, that equities are about to “melt up” as they did under Mr Greenspan in 1999, and that bonds are positioned for a crash with yields surging higher, much as happened in the early years of Mr Volcker. These two events are mutually inconsistent. They cannot both happen. Buf if either does come to pass, then this appointment will come to look very important indeed.
Mr Powell’s views on monetary policy are not as clear to the market as those of his predecessors when they took office. So that adds to the possibility of uncertainty and volatility, should the market put him to the test.
But for the time being, he deserves the best wishes of everyone. He has one of the world’s most difficult jobs ahead of him.