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A4 U.S. NEWS
Monday 5 February 2018

The Powell era at the Fed seems sure to face some turbulence

By MARTIN CRUTSINGER sure to accelerate its rate Grant Thornton, who ex- Alan Greenspan, who led on record — the one that
AP Economics Writer hikes to tighten credit and pects four rate increases in the Fed for 18½ years un- lasted from March 1991 to
WASHINGTON (AP) — When curb inflation. 2018. “The Fed may have til 2006, expressed worries March 2001.
Jerome Powell is sworn in Though the expansion has
Monday as the new chair- been marked by slow eco-
man of the Federal Re- nomic growth, that very
serve, the pride of the mo- trait might ensure its dura-
ment may be tempered by bility: Plodding growth has
Powell’s recognition of the kept inflation low and pre-
risks that lie ahead. vented the economy from
A ferocious sell-off on Wall overheating.
Street on Friday — with “I don’t think a recession is
stocks tumbling and bond on the horizon,” said Sung
yields rising after the Janu- Won Sohn, an economics
ary U.S. jobs report sug- professor at California State
gested higher inflation University, Channel Islands.
ahead — served as a blunt “We have had one of the
reminder of the challenges slowest periods of econom-
Powell’s Fed will face. ic growth on record, and I
At his Senate confirmation think slow means it will go
hearing, Powell stressed for a longer period.”
his intention to carry on For that forecast to prove
the cautious approach to correct, the Powell Fed
interest rate hikes that his will need to manage its
predecessor, Janet Yellen, rate policy with exceeding
pursued in four years as Fed care. Friday’s jobs report
chair. Yellen was able to showing wages rising 2.9
oversee a gradual rate pol- In this Nov. 28, 2017, file photo, Jerome Powell, President Donald Trump’s nominee for chairman of percent over the past 12
icy because inflation posed the Federal Reserve, sits in the audience before being called to testify during a Senate Banking, months — the biggest such
Housing, and Urban Affairs Committee confirmation hearing on Capitol Hill in Washington.
no threat: It ran below even Associated Press jump since the recession
the Fed’s 2 percent annual ended in 2009 — suggest-
target throughout her ten- That’s where the risks come to raise rates more quickly last week that dangerous ed that the Fed may be en-
ure. in: If the Fed tightened because the economy is bubbles might be forming tering an era of higher infla-
The Powell era could be en- credit too little, inflation stronger.” in the financial markets, in tion and a need for higher
tirely different. The job mar- might surge out of control. If For now, the economy that part because of high fed- rates.
ket is tighter. Wages are up. it tightened too much, a re- Powell’s Fed will preside eral debt resulting from in- With Yellen’s departure,
Federal debt will likely rise. cession could result. Steer- over shows strength and re- creased benefit spending the seven-member Fed
Tax cuts could accelerate ing a safe middle ground silience. Unemployment is as baby boomers retire and board will have only three
growth. has proved tricky for the at a 17-year low. The eco- the $1.5 trillion in tax cuts members. President Don-
All of which seems likely to Fed throughout its history. nomic expansion, already now taking effect. ald Trump has nominated
drive up inflation, which is It has sometimes miscalcu- the third-longest in U.S. his- “We are dealing with a fis- Marvin Goodfriend, an
what spooked investors Fri- lated how fast to raise rates tory, appears to be improv- cally unstable long-term economics professor who
day. The main question, is and triggered an econom- ing after a long stretch of outlook in which inflation has long urged the Fed to
by how much? For weeks, ic downturn. subpar growth. On the sur- will take hold,” Greens- raise rates more quickly, for
investors have been de- In December, the Fed pre- face, it might seem that all pan said in an interview on one vacancy. Goodfriend
manding higher bond dicted that it would raise its the Powell Fed needs to do Bloomberg Television. awaits Senate confirma-
yields. On Friday, after the benchmark short-term rate now is serve as caretaker The two most recent U.S. tion.
government said average three times in 2018, just as in for a high-flying economy. recessions were caused But the president hasn’t
pay rose year-over-year in 2017. Yet some economists But the Fed has always felt by bursting asset bubbles. yet nominated anyone for
January at the fastest pace now foresee four increas- compelled to respond to The pricking of the dot.com the three other vacancies.
in more than eight years, es. And those rate hikes threats before, not after, bubble led to a brief reces- Those selections will be criti-
the 10-year Treasury yield would coincide with the they arise, while there is sion in 2001. And the col- cal in determining the Fed’s
reached 2.84 percent, a Fed’s continued paring of time to prevent high infla- lapse of the housing bub- pace of rate hikes and in
four-year high. its bond holdings — action tion or an economic slow- ble ignited the 2007-2009 carrying out Trump’s desire
The Powell-led Fed would that puts upward pressure down. downturn, the worst since to loosen bank regulations.
be pleased to see inflation on rates for long-term con- “Everything points to a the Great Depression of the Powell’s responsibility will
finally reach its 2 percent sumer and business loans. more aggressive Fed un- 1930s. be to forge a consensus
goal. The problem would “The next phase of manag- der Powell,” said Mark The current recovery be- among the board mem-
be if it were to surge well ing the economy may not Zandi, chief economist at gan in June 2009. If it lasts bers and the 12 regional
above that level. The Fed be as easy,” said Diane Moody’s Analytics. until June 2019, it would Fed bank presidents who
would face intense pres- Swonk, chief economist at No less an authority than tie the longest expansion help set monetary policy.q