In light of the recent volley of market volatility, Jerome H. Powell the newly appointed Fed chairman has his work cut out to find the solution to achieving economic growth that is both adequate and financially sustainable.
There is a difficult balance to be struck. Except in the aftermath of recessions, it has been a long time since the U.S. economy grew well with a stable financial foundation. The US economy has been in recovery since the 2008-2009 recession.
That in turn was preceded by a period of financial excess in housing and other markets. Prior to that came the 2001 recession and recovery, which in turn was preceded by the Internet and stock market bubbles of the late 1990s.
Even with very low interest rates, the normal level of private saving consistently and substantially exceeds the normal level of private investment in the United States.
According to CNNMoney, Powell is very supportive of the Dodd-Frank Act, the broad set of reforms instituted after the financial crisis to make banks healthier. President Trump has sometimes threatened to get rid of parts of the law or the entire law.
But he also urged Congress to rewrite a Dodd-Frank Act provision called the Volcker Rule, which aims to prevent banks from making risky bets using taxpayer money
If the Fed raises rates sufficiently to assure financial stability, there is the risk that the economy will slow too much. If it focuses on maintaining the growth necessary to meet its inflation target, there is the risk of further increases in leverage and asset prices setting the stage for trouble down the road.
So it has been a generation since the U.S. economy enjoyed stable, financially sustainable growth from a position of strength. Good luck, Mr. Chairman.
Powell’s predecessor, Janet Yellen, was a professor of economics before being appointed governor of the Fed. Ben Bernanke, her predecessor, had a similar career. Alan Greenspan was the head of an economic consulting firm that he founded, while Paul Volcker worked mainly as an economist at the Fed and the Treasury Department. He worked at the Chase Manhattan bank in the 1960s, but it was when commercial banks like Chase were not allowed to make investment banking.
And thanks to his experience in investment banking, Powell is also much richer than his recent predecessors.
Powell’s assets are worth between $21 million and $61 million, according to financial disclosures that require officers to assign a range in value to their various holdings.