Powell’s Parting Gift: How One Chair’s Dissents Could Constrain the Next

Federal Reserve Chair Jerome Powell, according to a paper by DoubleLine’s Bill Campbell, has presided over a transition in the decision-making culture of the Fed’s rate-setting body from one dominated by the chair to a one of more independently minded members – likely a durable change that will constrain the policy leadership of his successor-apparent Kevin Warsh. “In his final 18 months as chair of the Federal Reserve, Jerome Powell has practiced a quiet tolerance of dissent on the Federal Open Market Committee (FOMC),” writes Mr. Campbell, Portfolio Manager and Head of the Global Sovereign & Emerging Markets team at DoubleLine. As Jerome Powell prepares to step down as Fed chair on May 15 while continuing to serve on the Federal Reserve Board of Governors and on the FOMC, his successor is set to take office amid a transformed FOMC, Mr. Campbell concludes. “The formal power of a Fed chair is one vote in 12. The informal power has always been far greater via coordination and the expectation of consensus. Chair Powell appears to have understood that in a political environment where the chair’s independence is under sustained pressure, the most durable protection for the institution is not his authority but the distributed authority of the committee. By letting members dissent freely, he made the Fed harder to capture through the office of the chair alone.”