Five questions Trump’s Fed pick will face

Jay Powell, President Trump’s pick to chair the Federal Reserve, will preside over a relatively strong United States economy if confirmed by the Senate.

The unemployment rate has been 5 percent or lower for more than two years, U.S. stocks are blowing past record highs, and consumer optimism has reached its highest level in almost 20 years.

But Powell will still face critical issues during the start of his tenure, from whether to weigh in on Republican efforts to rewrite the tax code to how to handle an unprecedented debt sell-off.

He also faces an interesting confirmation process given that 20 Republicans voted against his confirmation when he was initially appointed to the Fed by former President Obama.

Here are the five major questions facing Powell ahead of his stint atop the Fed.

Does Powell weigh in on the GOP tax overhaul efforts?

Republicans are aiming to enact their rewrite of the tax system by the end of 2017, months before Powell would become chairman.

If those efforts take longer, Powell will have to consider whether to weigh in on the progress and shape of the tax package — and he may get asked about it.

While Fed chairmen have historically avoided blatant political rhetoric, some have spoken out on the potential benefits and harms of polarizing economic legislation.

Current Fed Chairwoman Janet Yellen, a Democrat, has fiercely defended key parts of the Dodd-Frank financial reform law, and former chairman Alan Greenspan, a Republican, backed former President George W. Bush’s proposed tax cuts in 2001, citing increasing federal budget surpluses.

Greenspan argued that if the federal government continued to take in more money than it spent, the surplus could disrupt the economy. He was widely criticized by Democrats who considered his remarks a breach of the Fed’s independence.

Powell would face a much different situation. Republicans say their tax plan would generate more economic growth and help pay down the $20 trillion federal debt, despite decreasing federal revenue by $1.5 trillion.

Powell could be asked to give his take on the economic benefits of the GOP tax plan. Whether or not he does could invoke the wrath of Trump, who has not shied away from criticizing his own Cabinet officials and appointees.

Powell has already been confirmed by the Senate to a seat on the Fed board, but he’ll have to be approved by the Senate again to serve as chairman. While some Republicans praised Trump’s pick, others said they’d hold their judgement until they got a chance to question Powell.

Powell was opposed in 2012 by 23 Republicans, including GOP leaders such as Sens. John Cornyn (Texas) and John Thune (S.D.). He could feel pressure from some GOP lawmakers to back a more conservative economic agenda, given his moderate track record.

Powell could also face blowback from Democrats who preferred Yellen and feel pressure from their base to oppose Trump at every turn. Democrats who approve of his monetary policy could turn on Powell if he tries to solidify conservative support.

At the same time, Trump’s pick overall doesn’t appear to be in serious danger. Sen. Bernie Sanders (I-Vt.) was the only senator who caucuses with Democrats who voted against Obama’s nomination of Powell.

How will Powell address Dodd-Frank?

Powell led the Fed’s financial regulatory efforts from April 2017 until the swearing in of Randy Quarles as the Fed’s vice president of supervision.

Powell is close with Treasury Secretary Steven Mnuchin, and their relationship working together on Dodd-Frank changes led to Mnuchin pushing Trump to nominate Powell.

While in charge of the Fed’s bank oversight, Powell called for modest but significant changes to Dodd-Frank that have won some bipartisan support. His stance on Dodd-Frank has been similar to Yellen’s, but the Trump administration has proposed a slew of measures to “dismantle” the bill.

The Fed has limited power to change major portions of Dodd-Frank, and any efforts to adjust the Fed’s role in enforcing its rules would likely have to clear a vote by the full board. That means Powell would have little direct power over the law’s future.

Even so, Powell’s comments on Dodd-Frank and his closeness to Mnuchin could shape the financial world and the administration’s approach to amending the law.

And while taking a stronger stance against Dodd-Frank could reassure his conservative critics, it could turn more Democrats against him.

Does Powell ask Yellen to stay?

Trump broke years of Fed precedent by nominating Powell, a Republican, to replace Yellen as the Fed’s chair.

Presidents have historically asked the Fed chair they inherit to stay for another four-year term, regardless of party differences.

Yellen and Powell have taken almost identical stances on monetary policy, preferring a slow increase in interest rates, and support similar changes to the Dodd-Frank Act post-crisis financial rules.

Yellen’s chairmanship ends in February, but her term on the Fed board doesn’t end until January 2024. While former chairmen rarely stay on the board as governors if the president replaces them, it’s possible that Powell could ask Yellen to stay on the board.

Yellen hasn’t said whether she’d stay with the Fed after Powell takes over. But her similarities with Powell and high praise from Trump make her likelier than other former chairs to stick around.

How will Powell’s monetary policy differ from Yellen’s?

Yellen and Powell both supported a slow, steady increase in interest rates back toward historic averages, which helped grease the massive rise in the U.S. stock market. As the stock market rallied after his election, Trump turned into a fan of the Fed chairwoman.

It’s not clear if Powell would be more responsive to the concerns of conservatives, who’ve called for a quicker normalization of Fed rates.

How does Powell unwind the Fed balance sheet?

The Fed in October began selling off $4.5 trillion in securities it purchased during the 2007-08 financial panic to stabilize markets.

The bank began selling $6 billion per month of Treasury bonds and $4 billion per month in agency debt and mortgage-backed securities. The bank is scheduled to increase those caps by $6 billion every three months, until the bank is selling off $30 billion in Treasury bonds and $20 billion in debt each month.

Powell is unlikely to deviate from the plan right away, but could be forced to act if the release of debt has negative impacts on financial markets. While the plan was structured to have a minimal impact on the U.S. economy, the process could extend for several years and multiple economic cycles.