Tough job for Powell

(Nov 2): It looks like Jerome “Jay” Powell is set to replace Janet Yellen as Fed Chair and he will face a tough job in judging the amount of tightening needed over the coming years.

Powell has been on the Federal Reserve Board since 2012, but his background is in financial markets rather than economics. He looks like a centrist, “Yellen-lite” Chair, but without the academic credentials to drive the FOMC’s opinion on the direction of policy. Non-economists can bring a useful perspective to the policy discussion, but Powell is unlikely to have much of an impact on the views of the half of the FOMC that has a PhD in economics.

This is far from ideal, as at some point in Powell’s four-year term the Fed will need to decide how much interest rates need to overshoot neutral levels in order to cool down the economy, and perhaps also deal with the next recession.

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