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The Federal Reserve Is About To Get A New Chief


The single most powerful individual in the global economy leaves office this week.


It's news that would be easy to miss. Janet Yellen hasn't exactly made many headlines in a time of thriving markets when so much media focus has gone to the man in the White House. Yet the chair of the Federal Reserve remains profoundly influential.

INSKEEP: And tomorrow she hands over the keys to President Trump's choice for the job, Jay Powell. David Wessel has seen many a Fed chair come and go. He's director of the Hutchins Center at the Brookings Institution and contributes to The Wall Street Journal. David, good morning.

DAVID WESSEL: Good morning.

INSKEEP: How did Janet Yellen do?

WESSEL: Well, I think we should wait a couple of years to give her a final grade. The economy looked pretty good when Alan Greenspan retired in 2006.

INSKEEP: Oh, yeah.

WESSEL: And we know what happened a couple of years later. But look. The Fed's job is to keep the unemployment rate down, and prices are stable. Well, unemployment is now down to 4.1 percent - a 17-year low. Inflation is creeping back to the Fed's 2-percent target. So I'd say, by that measure, she did a darn good job. The other thing that's impressive is she managed to begin to wean the economy off the extraordinary monetary stimulus of the Great Recession with not a hiccup in the financial markets. And that wasn't preordained.

INSKEEP: I'm even thinking of another thing, David Wessel. The economic recovery started about 2009, right? So we've gone nine years - coming up on nine years of economic growth - not ideal economic growth but growth. And that's pretty rare, right? I mean, ordinarily we would have had a recession by now.

WESSEL: Yes, history suggests that recessions come and go. I think this was an unusually slow recovery. But recessions don't die of old age. And what usually happens is the Fed overreacts to some inflation, and that ends up causing a recession. She didn't move prematurely to raise interest rates, and I think that's another one of her legacies.

INSKEEP: Although she has ended up being the one who has raised interest rates a couple of times.

WESSEL: Right, five times in the last five years - and interest rates are still low. But her critics on the left say she did - even that was too much. She should have waited longer. After all, we barely have any wage increases, and prices are still below - rising below the Fed's target. Of course, other people say she should have moved sooner to raise rates. And they point to the stock market and the bond market. And they say that she allowed a bubble to blow on her watch and that Jay Powell may have to deal with the consequences.

INSKEEP: I guess this is another reminder of the end of the Greenspan-era and the aftermath. People say bubble. We don't really know if it's a bubble. We'll find out later if it's a bubble - I suppose.

WESSEL: Exactly.

INSKEEP: What's Jay Powell likely to do once he takes over the job?

WESSEL: I think he's going to continue to raise interest rates. The Fed, at Janet Yellen's last meeting, made clear that they're on track to raise interest rates three times, maybe four times this year. And it's going to be interesting to see what happens because President Trump has been very quiet about the Fed. He's not quiet about many things, but he's been quiet about the Fed. It'll be really interesting to see if he starts to attack Jay Powell, maybe on Twitter, even though Jay Powell's his appointee. And it will be interesting to see how Powell stands up to that. I suspect he will, but we never know.

INSKEEP: Do we have to assume - the law of averages being what it is - that Jay Powell will probably have to face a recession at some point?

WESSEL: History suggests that in his four years he will face a recession. And that's going to be a challenge to the Fed because it probably won't be able to rely on just cutting short-term interest rates as the Fed has done in the past. And that'll mean considering these so-called unconventional tools, like buying a lot of bonds, to get us out of it.

INSKEEP: David, pleasure as always.

WESSEL: You're welcome.

INSKEEP: David Wessel of the Brookings Institution. Transcript provided by NPR, Copyright NPR.