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Powell Takes Over as Fed Chairman With Economy Primed to Heat Up

Powell Takes Over as Fed Chairman With Economy Primed to Heat Up

It’s been a long time since an incoming Federal Reserve leader had it this good.

Jerome Powell will be sworn in Monday morning as the 16th chairman of the Fed, on the day after his 65th birthday. He’s inheriting a U.S. economy in its third-longest expansion on record, with unemployment and inflation near historically low levels.

Jerome Powell

Photographer: Andrew Harrer/Bloomberg

“Global growth feels more powerfully coordinated than it has in a long time and inflation remains low,” said Carl Tannenbaum, chief economist at Northern Trust Corp. and a former Chicago Fed staffer. “Some view inflation as a problem, but I remember when this was referred to as Goldilocks conditions.”

Still, the little girl from the fairy tale eventually confronted three bears, and so too the new Fed chief likely has trouble headed his way as he tries to keep the economy from overheating or getting cold. A U.S. stock market that’s roared to record highs in recent months is waking up to the risks: The Dow Jones Industrial Average tumbled 666 points on Friday, the biggest drop since June 2016.

It’s not just that inflation has languished below target. A deeper concern is that economists don’t completely understand why. The nation’s unemployment rate has fallen to 4.1 percent, less than half its crisis-era peak. That’s well below where most experts believed it would begin to provoke higher wages and inflation.

“This is more of an existential question — do we even know what drives inflation?” said Julia Coronado, founder of research firm MacroPolicy Perspectives LLC in New York and a former Fed economist.

This complicates Powell’s task in contemplating how fast to pull away the proverbial punch bowl as the economy gains momentum. In December, the median projection from Fed officials called for three quarter-point interest rate increases in 2018, but more could be needed.

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