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Jerome Powell: Stocks and shocks

Things couldn’t have gone worse on the first day in office for the new chairman of the US Federal Reserve

OPN_180208 JAY POWELL

Starting a new job is always stressful. There’re passwords and protocols to remember, everyone’s name to remember, figure out where the washrooms are, and who are the statues and who are the pigeons.

Pity then Jerome Powell, who last Monday proudly started his new job as Chairman of the United States Federal Reserve. He was in an upbeat mood as he settled down at his new desk in Washington, at the head of the central bank that sets interest rates, looks at all the various data streams from the world’s largest economy, from the financial institutions it oversees, assesses how other nations and economies are doing around the world, and tries to come up with a policy that somehow ties the whole thing together, keeping money in the markets, cash in the wallets of every American, and moving central banks the world over to follow in his institutions’ footsteps.

That money you send home from the UAE every month? It’s like as if Powell has his hand in your wallet, and he decides how much it’s going to be worth. Because the UAE dirham is directly pegged to the US dollar, Powell is an important man — what he says, does or doesn’t do, matters a great deal of the value of the dollar against every other currency.

Naturally, on Day One, Powell was in an upbeat mood. He was, after all, chosen by the President of the United States, Donald Trump, and had trumped all other candidates because of his five decades of financial and economic expertise. So, no sooner had he put his briefcase under his desk and plugged in his very smart phone, than he sent a video message out to all his staff members. That’s a good way for them to get to know the new big boss, and know what he’s thinking. It was pre-recorded, and gave a nice warm and fuzzy, upbeat assessment of America’s financial markets. In it he pledged to keep an eye on evolving risks.

“Unemployment is low, the economy is growing and inflation is low,” he said. “Through our decisions on monetary policy, we will support continued economic growth, a healthy job market, and price stability.”

But no sooner had the newbie hit the ‘SEND’ button on the video message, than all hell was starting to break and use up the Amtrak corridor in New York.

Simply put, it was hitting the fan.

By the time the blood had been shed on Wall Street, the S & P500 and the Dow Jones had plummeted like proverbial stones. Both were down 4 per cent, had pared back all the gains that had been made since December, and made Trump’s previous tweets on how great the market was doing look like real fake news. Janet Yellen, the impish former chair of the Fed must have been laughing all the way to the bank as she settled into her newfound retirement at the irony of it all.

Oh, it’s not as if Powell is the first Fed chairman to have a really bad start at the job. Alan Greenspan took over the Fed just as the US economy crashed in 1988, and Ben Bernanke took the helm just as the financial crisis of 2008 took hold. Yellen spent her four years, from 2014 onwards, cleaning up that mess before handing it off to Powell.

In fairness, you can’t blame him for the recent slides now — but you might very well be able to if he doesn’t act quickly to rein in the huge amounts of cash that are in Americans’ pockets. You see, all that cash comes from being able to borrow cheaply, and more will come from the tax cuts that Trump and the Republicans have brought in.

Having cash is good. Having too much is bad, they say. (I myself have to believe the they-sayers.) Too much cash means people can charge more, and people can pay more, and that leads to inflation.

The US dollar’s value is low too. When Powell really gets to work, the value of the dollar will rise because he’ll increase interest rates. That will make it more expensive to borrow. But it also means if you have money, you’ll get more by buying American dollars and sticking it in American banks. And a higher US dollar is good for everyone in the UAE sending money to their home countries.

In fairness, Jerome — that’s his real name, but everyone calls him ‘Jay’ — was a bit of a surprise pick by Trump. He’s 64, from Washington and is a lawyer by profession. He’s a smart dude, graduating from Princeton and was a partner in the Carlyle Group, one of the world’s biggest investment firms. The ironic thing is that of all Trump’s possible choices, Powell was seen as the one who would not spook the markets. (Well, we know how that worked out ...) He’s been on the board of the Federal Reserve since 2012 and has largely gone along with its decisions when he had to vote.

Voting is one thing, leading another.

Powell is a Republican, but is of the moderate conservative ilk on fiscal issues when it comes to America’s staggering national debt — it’s at $21.09 trillion right now — and on regulating banks. Like Trump, Powell likes a game of golf. Neither have an economics degree, which in Powell’s case at least is unusual as he is the Chairman of the Federal Reserve.

On occasions, Powell likes to bicycle to work in Washington.

He’s married with three children and because of his career at Carlyle, he has an estimated personal worth of $55 million. (I hope not too much of that was in stocks. Ouch!) He’s also spent time at the Bipartisan Policy Centre, writing papers on inflation that brought him to the attention of former US president Barack Obama, who then nominated him to the board of the Federal Reserve.

Now, after that rough first week, Powell has to get down to work for real. I hope he has figured out where the red ink is kept.

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