Donald Trump has ditched tradition and replaced US Fed chair Janet Yellen with the Republican dove Jerome Powell, who is expected to be more in favour of deregulation, but holds less academic nous than typical appointments.
Yellen became the first woman to head the central bank when she was appointed by Barack Obama in 2014. It is bipartisan tradition for central bank chairs to be reappointed for a second term.
G William Miller was the last US Fed chair not to be appointed for a second term when he was replaced by Paul Volcker.
Powell becomes the first non-economist to lead the Fed since Miller, who remained dovish in the face of high inflation and left the role to become Treasury secretary. While Powell already sits on the board of the Fed, he is trained as a lawyer and majored in politics.
In contrast, Yellen is an accomplished academic and held positions at Harvard and Berkeley.
She has said in a statement she will work with Powell through the transition.
Fidelity International chief economist Anna Stupnytska says the biggest market takeaway is that Powell favours financial deregulation compared to Yellen, despite otherwise representing policy continuity.
Powell is a former Wall St banker and lawyer and one of the wealthiest figures to lead the central bank having made a small fortune as a partner as Carlyle Group.
“Unlike recent Fed chairs such as Ben Bernanke and Janet Yellen, he has not advanced any theory or suggestion that could be relevant to monetary policy thinking,” Stupnytska says.
Premier chief investment officer Neil Birrell says Powell’s background in the financial sector means he is likely to be perceived as sensitive to markets.
Despite Trump’s confession that he wants to “make his mark” on the Fed, Powell is not expected to veer from Yellen’s dovish leadership of the Bank.
Stupnytska points out he has stuck to the party line in his existing time at the Fed making future appointments at the bank important. “For example, the board may be swayed slightly more hawkishly if John Taylor, an accomplished economist who advocates more hawkish rules-based policy, becomes vice chair,” she says.
Birrell says for the immediate term Powell’s appointment looks pro-cyclical and pro-market.
“The unknown factor will be how he leads the committee in difficult times,” Birrell says.
There are now only 10 women heading central banks around the world with all but the Bank of Israel in emerging economies and none coming close to the power held by the US Fed chair.
Central Bank of Russia president Elvira Nabiullina represents the largest economy.