New US Fed boss starts off from rare position of strength
Jay Powell has inherited an economy in decent shape but he will have to normalise rates while keeping growth on track
Former US Federal Reserve chairwoman Janet Yellen said on public television that she would have liked to serve a second term. That may be so, but as timing went, her departure was almost perfect.
Her successor Jay Powell’s first day in office was overshadowed by the protracted rout in the stock market. The S&P 500 and the Dow lost more than 4 per cent, making it the worst plunge since August 2015.
Yellen could walk out of the Fed headquarters with her head held high, having left behind an economy in a decent shape since the onset of the global financial crisis a decade ago.
Just days before her departure, she sounded almost prophetic when she warned that the stock and real estate markets in the United States had high valuations.
The US economy grew by 2.3 per cent last year, well ahead of the 1.5 per cent growth in 2016, but slower than 2015. For the first time in a decade, there is clear evidence of synchronised growth in all the major world economies.
Powell has his work cut out for him. He will have to normalise interest rates after a prolonged period of ultra-low rates. He will have to shrink the Fed’s unprecedented US$4 trillion-plus balance sheet resulting from its quantitative easing and other unorthodox policies.