A couple of weeks ago, the conference organized in Frankfurt by the European Central Bank (ECB), to discuss the challenges of communicating monetary policy, allowed for a snapshot of Mark Carney, Mario Draghi, Haruhiko Koruda and Janet Yellen, the Presidents of the four main central banks, whose faces are well recognizable after starring in the media covers during the long crisis. The photo will be difficult to repeat with the same protagonists, taking into account that the relay race has already started.
In the United States, the nomination of Jerome Powell as a substitute for Yellen has already been voted in the Senate. Donald Trump’s decision to replace it breaks with the tradition of renewing for a second term the Fed’s head, even in cases where they were appointed by the President of another political party. This is what happened with its three immediate predecessors, when the presidential decision gave priority to continuity and predictability. Neither the strong academic credentials, nor the collegiate and articulated management of monetary policy, nor the obvious achievements in economic terms during its mandate, advised the substitution of Yellen. Its departure has generated some nervousness, which has also contributed to the anticipated departure of two heavy weights from the Fed’s Council, such as the Vice-President and the President of the institution in new York, and the high number of pre-existing vacancies.
In short, a combination of circumstances that raises doubts as to whether the new composition may have implications for monetary policy management, and even about its own independence. In the shortest term, monetary policy can be said to be almost automatic pilot. The projections have been responsible for designing and communicating crystallinely to the market the way to the monetary normalization. And the recent nominations are interpreted as a commitment to continuity, both that of Powell to relieve Yellen, a person “of the house” and with a vision very aligned with that of the outgoing President; Like that of Professor Marvin tires, expert in monetary affairs and guarantee of professional rigour, although with some more orthodox bias (bullish).
The renewal will also affect in the near future other jurisdictions. Japan must decide on Kuroda’s renovation before spring. And in Europe, the end of the Vice-President’s term of office in the middle of next year will mark the start of a debate in which, unfortunately, geographical equilibrium will continue to weigh more than other considerations.
Let our trust that the new governors occupy less cover than their predecessors; It would be a sign of normalization and that we do not need superheroes to ensure stability.
Sonsoles Castillo is an economist at BBVA Research.
