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Fed: Powell nomination for the next Fed Chair will not be a game changer - Rabobank

According to Philip Marey, Senior US Strategist at Rabobank, nomination of Jerome Powell for the next Fed Chair will not be a game changer for the Fed’s rate policy: Powell’s views are as dovish as those of Yellen. 

Key Quotes

“In case of a recession Powell would be more hesitant to start QE4, as his views on the use of the Fed’s balance sheet are more centrist.” 

“A Powell Fed is likely to support President Trump’s deregulation agenda, especially if the vacancies in the Board of Governors are filled by proponents of deregulation.”

Implications for markets

  • Since Powell’s views on rate policy have been similar to Yellen’s, we do not expect a significant change to the Fed’s hiking cycle once Powell takes over in February. Therefore the trajectory for money market rates and longer-term rates will not differ much either. We are likely to see a modest bearish flattening of the yield curve as the Fed gradually and cautiously raises the target range for the federal funds rate.
  • During hiking cycles the yield curve tends to flatten – ceteris paribus – as the short end of the curve is more sensitive to policy rates than the long end of the curve. The continuation of the Fed’s gradual and cautious approach should also help contain market volatility. As long as the economy continues to grow a Powell Fed is not likely to behave much differently from a Yellen Fed. However, in case of a recession Powell may be more hesitant to resort to another round of quantitative easing as a means to reduce longer-term rates.”


When Powell takes over from Yellen, we are not likely to see a major shift in rate policy, at least not because of Powell. We should keep in mind that President Trump still has to make at least three other appointments (four if Yellen leaves the Board after losing the Chair, five if Brainard decides to leave as well) to the Fed Board of Governors. Trump can choose whether he wants a dovish or hawkish Fed. This choice suggests that he likes doves, provided they share his views on deregulation.”

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