powell Drew Angerer/Getty Images

CRE Economists Say New Fed Chair Nominee Not Likely to Rattle the Market

Economists who wanted to see continuity in monetary policy are more likely to feel Powell was the best choice for the role, says Sam Chandan, associate dean of NYU's Schack School of Real Estate.

President Donald Trump last Thursday nominated Federal Reserve governor Jerome Powell as the central bank’s new chairman. Real estate economists do not expect Powell to force dramatic changes in monetary policy.

Powell had seemed the most likely nominee of the candidates Trump was considering, says Alessandro Rebucci, an associate professor of finance, real estate and macroeconomics at Johns Hopkins Carey Business School. Powell also represents continuity for the institution and is unlikely to introduce unexpected proposals, which is good news for the markets and the real estate sector, he adds. “He fits the president’s agenda without jeopardizing the stability and functionality of a very important institution,” Rebucci says.

In the announcement during a Rose Garden ceremony, Trump said Powell, who previously had served as undersecretary in the U.S. Department of Treasury under George H.W. Bush, brings to the role extensive public and private sector experience. Trump said the economy has been improving, citing recording low unemployment and back-to-back quarters of GDP growth as indicators. He also said the economy needs sound monetary policy and careful oversight of the nation’s banking system, and “strong, sound and steady leadership” at the Fed. Trump added that he is confident that Powell, who has the respect of both parties of Congress, can steer the economy in the right direction.

“He will provide exactly that type of leadership,” Trump said. “He’s strong, he’s committed, he’s smart.”

Powell has advocated for raising interest rates gradually and defended some of the Wall Street regulatory policies the Fed adopted after the crisis, while noting that some may need to be changed, according to the Wall Street Journal.

In thanking Trump for the nomination, Powell said the economy is more stable and resilient than it has been, while banks have higher capital and liquidity and are more aware of managing risks after the 2008 financial crisis. “While post-crisis improvements in regulation and supervision have helped to achieve these gains, I will continue to work with my colleagues to ensure that the Federal Reserve remains vigilant and prepared to respond to changes in markets and evolving risks,” Powell said.

In September, the Fed, in a widely anticipated announcement, said it would hold interest rates at 1.0 to 1.25 percent and start to sell off its almost $4.5-trillion portfolio of bonds and other assets. Another rate increase is expected in December. After the bank had kept rates near zero for seven years, it has raised rates—by a quarter percentage point—four times since 2015.

Economists and policy makers who wanted to see continuity in monetary policy are more likely to feel Powell was the best choice for the role, says Sam Chandan, founder and chief economist at Chandan Economics and the associate dean of New York University’s Schack School of Real Estate. Based on Powell’s voting record, he likely will follow the monetary path laid by Janet Yellen, which includes gradual, data-driven increases in the target rate, Chandan adds.

A concern of the real estate industry over the course of the country’s economic expansion has been interest rates, but Chandan says with the appointment of Powell, there likely will not be a “significant departure” from the Fed’s current approach. “The industry can at this point expect a relatively predictable path in monetary policy,” he adds.

The Senate must confirm Powell’s appointment. who has been with the Fed for five years. Powell has been with the Fed for five years. Trump’s decision, which came the same day as House Republicans released their tax reform proposal that seeks to slash corporate taxes, among other changes, breaks with almost four decades of precedent of presidents re-nominating sitting chairs. In his announcement, Trump praised Yellen for her service, saying she is “a wonderful woman who’s done a terrific job.”

Investors expect that Powell, in comparison to Yellen, would modestly increase rates overtime, reports The New York Times. Among some of Powell’s goals is overhauling the Volcker rule, whose objective is to block financial speculation but which is viewed by him and other Fed officials as a burden.

Powell, generally regarded a Republican, has a more lenient attitude toward scaling back some of the regulations adopted during the financial crisis than Yellen, Rebucci says. For example, Powell has indicated that he may be more likely to ease regulations on smaller, community banks, Rebucci notes.

There are some indications that Powell may be more circumspect in his approach to the regulation of large financial institutions compared to Yellen, Chandan says. But he adds it is unclear whether there will be any shift in the regulatory approach that will impact community or smaller, regional banks. Chandan says he expects possible changes in tone on requirements related to bureaucratic elements such as compliance and stress tests.

With a background in Wall Street and not as a trained economist, Powell may also be more inclined than Yellen to wait for signs of inflation to appear before supporting rate hikes, Rebucci says. If Yellen had stayed on the job, the bank may have increased interest rates soon after the adoption of the new tax reform plan. However, Powell may be more likely to see what happens rather than advocate for tighter monetary policies if the tax cuts increase the budget deficit, according to Rebucci.

However, Barbara Denham, a senior economist at real estate research firm Reis, says Yellen has a keen ear for understanding why inflation has not been moving robustly, and has countered those who think that if interest rates do not increase, then inflation will skyrocket.

Still, the personnel change did not come as a shock to Denham. “He won’t be a radical departure from her,” Denham says, referring to Yellen. However, Denham adds she is disappointed in Trump’s move not to reappoint the chairwoman. “She’s just very cautious and plain-spoken and smart,” Denham says.

Yellen has been managing monetary policy effectively, Denham says. While Yellen has proven her support for maintaining regulatory policies put in place after the financial crisis with her decisions as the Fed chair, there are only Powell’s words to trust in an environment where there may be increased pressure to loosen financial regulations from the Trump administration. “She just has more gravitas, and I think she would resist that persuasion better than most people,” Denham adds.

TAGS: News
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish