Newsmaker: Jerome Powell — The ‘real-world’ rescuer

When Jerome Powell took charge as the chairman of the US Federal Reserve in 2018, the appointment was seen as unusual in an institution long accustomed to being led by economists.

Powell’s immediate predecessor, Janet Yellen, was an economics professor at UC Berkeley. Ben Bernanke led the economics department at Princeton University.

And Alan Greenspan started his own economic consulting company.

But Powell, a low-key Republican and a Princeton graduate with a background in investment banking and private equity, became the first Fed chief in more than 40 years who did not have an economics degree.

Wealthiest Fed chairman

He had been a Fed governor since 2012 — when he was appointed by President Barack Obama.

Widely seen as a dove who would follow in Yellen’s footsteps, and one who favoured a gradual departure from the expansionary monetary policy introduced in the wake of the 2008 financial crisis, some also saw a very different reason why Donald Trump went ahead with Powell’s nomination: the US president publicly commended him for his time in the private sector and his “real-world” experience.

A policy centrist and a collaborator, Powell’s central tenet behind the Fed’s feverish action of the past few weeks has been simple but humane: there’s no one to blame for the current financial situation emerging out of the outbreak and government lockdowns, and therefore everybody needs to be protected until the economy stabilises

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That experience helped Powell amass a fortune estimated between $20 million (Dh73.4 million) and $55 million — making him one of the wealthiest people to ever lead the Fed.

But this week, with the global economy teetering on the edge of recession and a $2 trillion US stimulus package finally finding its way out of political crossfire, Powell was in the news for something far away from the sphere of his fortune or the filibuster of Capitol Hill.

Facing financial catastrophe

Ever since the US began to grapple with the magnitude of the coronavirus outbreak on the world’s largest economy, there have been dire predictions of financial catastrophe.

Wall Street has been battered like never before.

Cash flow, credit crunch and bankruptcy have become the new buzzwords.

From analysing the impact of US-China trade war and weaknesses in Europe, the Federal Reserve’s focus has suddenly shifted in a matter of weeks to the enemy at the doorstep: coronavirus.

As cases of Covid-19 surge from New York to California and the US stares at becoming the new epicentre of a global outbreak, the public panic and pandemonium is palpable.

It’s in this atmosphere of panic and mistrust that Powell has emerged as a rare beacon of hope and stability — not only for the US but also by extension for the global economy.

Array of financial tools

Over the past three weeks, Powell has moved swiftly to deploy an unprecedented array of financial tools and credit facilities that can keep money and confidence flowing, even as much of the US political establishment is caught either dithering or haggling over the extent of public relief needed.

On March 15, he organised an unusual Sunday media briefing to announce that the Fed had slashed interest rates to almost zero. Since then, he has initiated dramatic measures to cushion the blow of the coronavirus on financial markets and the US economy.

Bold and innovative action

His decision to restart a colossal bond buying programme to purchase $700 billion worth of US Treasuries and mortgage-backed securities is reminiscent of similar action by the Fed during the 2008 recession. And his announcement to buy significant amounts of commercial paper — the short-term loans that businesses use to pay bills and other expenses — prompted the Dow Jones Industrial Average to jump more than 500 points.

Other policy actions have been bold, muscular and innovative enough to avoid short-term cash crunches: actions with central banks worldwide to ease the supply of dollars and keep global trade and finance going; loans for so-called “primary dealers” that buy US government bonds directly from the Treasury; and programs for lending directly to American businesses.

A bridge over troubled waters

Under Powell’s stewardship, the US Fed has rapidly emerged as a bridge over troubled waters during the coronavirus crisis, offering a financial lifeline to individuals and institutions and supporting families, businesses and jobs.

Ironically, Powell’s harshest critic prior to this firefighting has been the same person who initially applauded his appointment: President Trump. The US leader has frequently lampooned Powell for raising interest rates and even compared him to an “enemy equivalent to or worse” than China’s leader Xi Jinping.

But then Powell is no stranger to stinging criticism or defying established doctrines.

Wide-ranging resume

Born in Washington D.C. in 1953 as one of six children to a lawyer father, Powell earned a degree in politics from Princeton University in 1975 and a Juris Doctor from Georgetown University Law Centre in 1979. After that he embarked on a journey to create a wide-ranging resume: a lawyer, an investment banker, Secretary of the Treasury for Domestic Finance under President George HW Bush, a visiting scholar at the Bipartisan Policy Center and the managing partner of two private equity firms.

During his stint at the Treasury, Powell oversaw the sanctioning of Salomon Brothers and was a key negotiator in making Warren Buffett the chairman of Salomon.

Reaching out across political aisles

His willingness to reach out across the political aisle became apparent when he worked behind the scenes for a salary of $1 a year to get Congress to raise the US debt ceiling during the debt-ceiling crisis of 2011. That initiative helped Powell secure his initial nomination to the Fed by Obama — the first time that a US President nominated a member of the opposition party for such a position since 1988.

While Powell has no compunctions in being a political pragmatist if needed, his solidarity around the Federal Reserve has been enduring: he has never cast a dissenting vote since joining the Fed.

Simple rationale

A policy centrist and a collaborator, Powell’s central tenet behind the Fed’s feverish action of the past few weeks has been simple but humane: there’s no one to blame for the current financial situation emerging out of the outbreak and government lockdowns, and therefore everybody needs to be protected until the economy stabilises.

Even as the world clamours for global political leadership during the coronavirus outbreak, Powell has at least helped the US take charge of global financial leadership to manage the consequences of the outbreak. As the chair of the top committees of the Bank for International Settlements — where central bankers from around the world coordinate policy — his decisions will go a long way in easing a global crisis.

The world is bracing for unprecedented economic turbulence, but with Powell at the helm of Federal Reserve, the US has managed to put up a calm but valiant fight to prevent the financial pandemic that would otherwise follow inevitably and bring down everyone.