Global Economic Perspective: November

Economic Backdrop Has Remained Supportive as Fed Chair Nomination Suggests Policy Continuity

The economic backdrop has remained supportive, both in the United States and globally, and should allow the Fed to continue raising interest rates at a measured pace, in our view. Jerome Powell’s nomination as Fed chair points to continuity in monetary policy in the near term, although coming appointments to other key positions at the central bank could increase uncertainty in this area further down the line. The implementation of an expansionary fiscal package aimed at boosting growth at this relatively late stage in the economic cycle would also probably move the dial on monetary policy, but we would caution that the prospect of agreement on such legislation remains some way off and may well prove too difficult to achieve.

Two issues have been prominent across news headlines in the United States. The first was the nomination of Jerome Powell by President Trump as the incoming chair of the Fed, a choice widely seen as representing a continuation of the status quo in terms of the central bank’s policies. Jerome Powell was first appointed to the Fed’s seven-person Board of Governors in 2012, and over that time he has never dissented from the Federal Open Market Committee’s (FOMC’s) decisions on monetary policy. Though Powell is thought to favor a lighter touch on financial regulation than current Fed Chair Janet Yellen, his nomination provided re-assurance to market participants that her relatively predictable approach and dovish tendencies on monetary policy would be maintained during the transition of the Fed’s leadership. There was little sign of any market reaction in the run-up to the announcement of Powell’s nomination.