Trump Taps Powell for Fed to Oversee Economy Fraught With Risks – Bloomberg

Jerome Powell, said to be President Donald Trump’s pick to be the next Federal Reserve chairman, is set to take the reins of the world’s most important central bank when the U.S. economy is rolling along at a pace he’ll be under pressure to sustain.

Growth is accelerating, inflation is tame and unemployment is the lowest in 16 years. Such a backdrop should initially enable a new Fed chairman to keep gradually raising interest rates from historic lows with the aim of stretching out what is already the third-longest U.S. upswing.

But expansions don’t die of old age. Rather, they typically are brought down by the bursting of asset bubbles, shocks like natural disasters or political upheaval, or errors by central banks. 

Faster rate hikes could cool the stock market but risk holding inflation below the central bank’s target, possibly tipping the economy into a recession. Tightening too slowly could stoke asset values even further, creating trouble down the road. Powell, and Trump by association, will own the outcome.

Powell has the added dilemma that his Fed would confront any slump in growth with little in its policy arsenal. There is barely room to cut rates deeply, and the backup plan — quantitative easing — is now the subject of Republican lawmaker ire.

“Powell has been dealt some cards in this poker game that aren’t helpful for carrying out monetary policy,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “The world economy has never been in better shape, but it is a very unthankful job to be a central banker these days.”

Trump Taps Powell for Fed to Oversee Economy Fraught With Risks – Bloomberg

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