President Donald Trump has nominated a new chair of the Federal Reserve Board and, thank heaven for large mercies, the future most powerful central banker on Earth is not a crazy person. Not even close.
It's true that Jerome Powell, a Fed governor since 2012, and a longtime Wall Street lawyer and investment banker, doesn't have outgoing chair Janet Yellen's distinguished academic pedigree. Few do. But he does not appear to have any serious policy disagreements with her. He has been largely supportive of the current path of Fed policy, including unwinding monetary stimulus, and doing so at a relatively cautious pace.
That's good news for Canada's economy and the Bank of Canada's own monetary-policy outlook, because it means less likelihood of a Fed-driven shock to the status quo.
The best choice would have been for Ms. Yellen, whose mandate is up early next year, to be re-appointed. The longstanding custom in Washington is for well-performing Fed chairs to get a second term. However, Mr. Powell seems to be a pretty good second best. He's shown himself to be a prudent, level-headed and open-minded central banker.
That last quality has never been more important. Since 2008, the central-banking rule book has been challenged by a series of economic surprises that raised difficult questions about conventional economic wisdom. The Fed operates in an evidence-driven world where theoretical certainty is dangerous, and reliance on pat answers is fatal.
Mr. Powell's predecessors, Ben Bernanke and Ms. Yellen, were faced with a global banking crisis, a Great Recession, the problem of nominal interest rates that could not go below zero and, once the economy recovered, inflation that refuses to rise much, even in what appear to be tightening labour markets. The last two Fed chairs, unlike many other central bankers around the world, were not rigid in their responses to economic realities that didn't conform to textbook theory. That's why they succeeded. That's why the financial system didn't collapse; that's why we're not still in the Great Recession.
Mr. Powell's pronouncements over the past few years suggest that he's inclined to follow in their footsteps.
Though Mr. Trump often acts the impetuous and irresponsible leader, in this instance he's opted for continuity and professionalism rather than putting forward an underqualified crony or ideological trumpet.
Mr. Powell is a Republican, which seems to be a baseline requirement, but he's not aligned with the Bannonite GOP insurgency. He was appointed to the Fed by a Democrat, former president Barack Obama. And as a governor he's largely marched in lock-step with Ms. Yellen's macroeconomic policies and generally dovish views on interest-rate hikes.
Nor does he embody the Trumplandian ideal of a lunch-bucket Republican; he's a lifelong member of the Washington, D.C., intelligentsia, educated at Princeton and Georgetown, and a multimillionaire former partner in white-shoe Wall Street law firms and investment houses.
Mr. Powell will also be the first Fed chair in decades who does not hold a doctoral-level degree in economics or finance. That's a weakness – but no Fed chair can be an expert in every aspect of the bank's mandate. On the plus side, he has deep knowledge of, and personal relationships in, markets and banking. Previous Fed chairs, with more academic backgrounds, tended to be strong on economic theory but had less experience with the mechanics of how monetary policy and banking regulation actually get transmitted.
That kind of knowledge turned out to be necessary in 2008, when the global financial system nearly imploded. Then-Fed chair Mr. Bernanke had to lean heavily on the expertise of the Secretary of the Treasury and the President of the New York Fed.
If Mr. Powell hews closer to the White House's agenda on anything, it is his approach to regulation. There may be a loosening of the fetters on some banking activities under his watch, but he has given no signs of being a believer in any radical change in financial-system regulation.
Prior to Mr. Trump's election, the White House and Congress were split between the Democratic and Republican parties – as a result of which nominations to the Federal Reserve Board often turned into deadlocks, with some seats on the board left vacant for months or even years.
The Fed is supposed to have seven governors, including the chair, each appointed to 14-year terms. Three of those seats are currently open, including the post of vice-chair.
Even after the status quo-reinforcing appointment of Mr. Powell, the President still has the opportunity to reshape the membership, and the direction, of the Fed.
The governors are independent voices on monetary policy, and independent votes on the U.S. central bank's policy-setting Open Market Committee.
The chair is first among equals at the Fed, but depending on whom Mr. Trump selects for the other three governorships, they could have an impact on U.S. economic policy, for good or for ill.
But that's a question for another day. The good news now is that Mr. Powell is a solid, unspectacular, stable choice for the head of the body that is arguably the world's most influential economic actor.
In the current environment, that counts as excellent news.