Jerome Powell's Fed could be very different than Janet Yellen's, but the Fed governor is expected to steer monetary policy much as she did but jump into deregulation in a way she would not.
Powell is expected to be nominated to head the Federal Reserve by President Donald Trump on Thursday as the successor to Yellen when her term ends in February. A lawyer and former undersecretary of the Treasury, he is considered a solid choice, and while not an economist, he is experienced at the Fed, having been appointed a governor in 2012.
Powell is also a Republican and the least controversial of the final choices Trump considered to run the central bank, other than Yellen. The Wall Street Journal reported Wednesday that Powell was notified of Trump's decision to nominate him.
Powell will steer the Fed, but central bank watchers note that the institution is already shifting. The new Fed will be more hawkish because of a switch to more hawkish Fed presidents as voters next year. In addition, there are three governor vacancies for Trump to fill, and those individuals could make a big difference in the way the board operates.
Repeatedly described as boring by Wall Streeters, compared with economist John Taylor or former Fed Governor Kevin Warsh, Powell is expected to stay on a similar policy course as Yellen but could be proactive in dropping some regulations on the financial sector.
"He's boring, but he's to the point," said Ward McCarthy, chief financial economist at Jefferies. "You don't listen to him and scratch your head and wonder what he just said."
Powell's background is in private equity but he also worked in the Treasury Department under President George H.W. Bush and helped investigate the former trading house Salomon Brothers' Treasury bond scandal. He played a role in bringing Berkshire Hathaway's Warren Buffett into Salomon in the wake of that scandal.
"I think he's a good candidate," McCarthy said. "His strength, I think, is really more in regulation and he has some great experience on that front, dating back to when he worked with Warren Buffett to try to prevent problems at Salomon Brothers from becoming systemic ... so he's very knowledgeable about financial markets and had a successful career at Carlyle Group."
Buffett, a large Salomon shareholder, moved into the chairman role 25 years ago during the crisis, which was caused by a trader who had circumvented Treasury auction rules so he could corner the market on two-year notes. Powell recently spoke about those events, saying it still gives him nightmares. Powell was then undersecretary of the Treasury for finance.
The downside is that his experience is more on the market regulatory side than on monetary policy, McCarthy said. But to some in the markets, that could be a refreshing change - and a boost to financial stocks. Yellen stood by the reforms made since the 2008 financial crisis and had publicly cautioned against loosening regulation.
Besides that Trump made a point of seeking change at the Fed, Yellen was considered by some Fed watchers to be out of the running because of her stand on deregulation.
Powell has said he favors reviewing regulatory changes. "The post-crisis reform programme has been mostly completed and has mostly been successful. I think it's our obligation now, as we reach completion of it, to look back over it and ask what aspects of it may be redundant or inefficient or utterly essential and should be protected down to every letter. But there are going to be some adjustments and I think that's only appropriate," Powell said in a June interview on CNBC.
As for his approach to monetary policy, Powell is likely to follow Yellen, who was considered a super dove when she took the chairman role from Ben Bernanke, but has proven herself to be more hawkish than some members.
"I don't think he's going to do much to alter it, at least immediately," said Jim Caron, a fixed income portfolio manager at Morgan Stanley Investment Management. "Having been on the Fed, people know him. They don't view him as an adversarial outsider coming in with an agenda."
Analysts say the stock market should like Powell, and Treasury yields were more subdued after it became clear that Taylor or Warsh were not going to be named chair. In the stock market, "they see it as continuity, and the stock market is planning on low rates for long or even forever," said Diane Swonk, CEO of DS Economics. "I think that may be misplaced because of the economic conditions, and I actually think we're going to get four hikes next year."
Trump has said he likes low rates. Trump also has bragged about the trillions in gains in the stock market since he became president, something that could reverse if interest rates rise too quickly.
John Stopford, head of multi-asset income at Investec Asset Management, also said Powell would have appeal for the stock market. "At the margin, you might see a little move down in bond yields, a little softening in the dollar. ... If you have someone who is going to run looser policy, that's something stocks should be quite happy about," he said.
But Stopford and others said the challenge for Powell will be who he is surrounded by. There was speculation that Trump would appoint Taylor as vice chairman. Taylor is well-known for his Taylor rule, a rules-based approach to setting interest rates. Both he and Warsh, who has been outspoken against the Fed's quantitative easing, would set the Fed on a faster rate-hiking path.
Swonk said Powell cannot move much on deregulation without Fed support, and that means the vacancies would have to be filled with a view toward deregulation.
"Bottom line is you need to fill out the list of governors. If you want deregulation, you need to make all the appointments," said Swonk.