What is your view on the new Fed Chair, Jerome Powell, nominated by President Trump?
Didier BOROWSKI: Jerome Powell will succeed Janet Yellen in February 2018. He was the candidate of continuity with the Bernanke/Yellen era. Appointed at the Fed in 2012, Powell has consistently supported the monetary policy decisions since then. Like his two predecessors, he thinks that the equilibrium interest rate has fallen and that inflation is not threatening in the short term. Conversely, unlike them or John Taylor, Powell is not an economist. Unlike the latter, he does not favor rigid rules of monetary policy. These two characteristics played in his favor. His reputation for pragmatism and his experience in the bank probably ended up convincing Donald Trump that he is the man for the job. At a time when the tax reform is becoming more precise, the appointment of a moderate republican also appears as a pledge given by Trump to the moderates of his camp that he needs to pass tax cuts. In addition, Powell is measured when it comes to financial regulation, certainly favorable to a relaxation of the latter but not prone to upheaval. Finally, it should be noted that Powell gives an important role to the evolution of monetary and financial conditions (US dollar, long-term bond yields, credit spreads, and equity markets). It turns out that the Fed’s “reaction function” will remain flexible and its action opportunistic. So if an expansionary fiscal policy calls for a rebalancing of the policy mix, with less monetary accommodation, it will be small steps. The risk of a rise in the US dollar and long rates requires proceeding with caution.