Originally Appeared in The New York Times.
Perhaps not surprisingly, President Trump seemed to treat the appointment of a new head of the Federal Reserve — arguably the most important personnel decision he has faced — a bit like a season of “The Bachelor,” dangling tantalizing hints before handing the rose to Jerome H. Powell.
In doing so, Mr. Trump, more surprisingly, picked by far the better suited of his two semipublic finalists.
That’s because Mr. Powell, a current member of the Federal Reserve Board, resides firmly in the camp of supporters of the Fed’s policy of maintaining its low interest policy as long as inflation stays muted and wage increases remain stubbornly small.
The other candidate — the economist John B. Taylor, the reported choice of Vice President Mike Pence and other hard-line conservatives — is openly hawkish, having warned for years that the central bank’s easy money policy was stoking future inflation.
Most prominently, in November 2010, Mr. Taylor was among 24 signatories to an open letter to Ben Bernanke, then the chairman, attacking a signature aspect of the Fed’s efforts to stimulate a sluggish economy, its “quantitative easing” program of purchasing debt in the market to keep interest rates low.
These purchases “risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment,” the group wrote.
That was wrong in 2010 and is still wrong today. In the intervening seven years, 16 million jobs have been created. Meanwhile, inflation, which was running just over 1 percent when the letter was written, has barely budged.
In a recent study, the Federal Reserve Bank of Minneapolis came to a similar conclusion: Had the central bank followed Mr. Taylor’s prescription, the higher interest rates that he advocates would have resulted in 2.5 million more Americans being out of work today — enough, the Minneapolis bank observed, to fill all 31 National Football League stadiums at the same time.
However, neither is Mr. Powell excessively dovish; he has not dissented from any Fed decision since becoming a governor in May 2012, including the four recent interest rate increases.
Perhaps the biggest question mark swirling around Mr. Powell is that he is not a trained economist. The short reign of the last Federal Reserve chair to lack a deep background in economics, G. William Miller, was disastrous: In 1979, he was outvoted by his own board when he opposed an interest-rate increase that was, in retrospect, badly needed to combat raging inflation.
But Mr. Miller had scant previous experience in Washington or in finance; Mr. Powell, a lawyer and, later, a partner at the investment firm Carlyle Group, has substantial amounts of both, including at the Treasury Department.
That distinguishes him from many other Trump picks with their more modest qualifications for their posts.
Mr. Powell is also distinctive for having distanced himself just a few months ago from Mr. Trump’s plan to deregulate the financial sector, calling it a “mixed bag” and noting that “there are some ideas that I would not support.”
While advocating some regulatory relief, particularly for smaller banks, he has voted in favor of every proposal to tighten bank regulations during his tenure on the Fed.
Interestingly, like the president’s own deregulatory proposals, all of Mr. Trump’s five semifinalists were not only well qualified but were also far removed from the anti-bank fervor of the populist wing of the Republican Party.
In some ways, the choice of Mr. Powell shouldn’t be too surprising. As a highly leveraged real estate developer, Mr. Trump benefited enormously from low interest rates.
While the president’s musings on monetary policy have been characteristically inconsistent and even incoherent, he’s mostly sounded like this: “I do like a low interest rate policy, I must be honest with you,” he said in April.
For his part, Mr. Powell has happily made clear his lack of affection for Mr. Taylor’s signature contribution to the monetary policy debate, a mathematical rule for setting interest rates that, if applied, would cause rates to be about two percentage points higher today than they are.
“I am unable to think of any critical, complex human activity that could be safely reduced to a simple summary equation,” he said at a New York luncheon in February.
Even if economic conditions remain quiescent, the Fed will still face challenges, including how quickly to raise interest rates and, as important, how rapidly to reduce its vast holdings of debt securities.
For those and other reasons, I would have preferred that Mr. Trump reappoint the current chairman, Janet Yellen.
But at least, for once, Mr. Trump has rejected both traditional Republican conservatives as well as his populist base and made a sensible choice.
