ditor’s note: Markets breathed a sigh of relief after President Donald Trump named Jerome Powell his pick to be the next chair of the Federal Reserve. If confirmed, Powell – considered a “safe” choice – would take over from current Chair Janet Yellen in February, becoming one of the world’s most powerful people. So what’s the big deal? Economist Greg Wright explains why who leads the U.S. central bank matters to us all.
What does the Fed do?
The Federal Reserve oversees all banks and financial institutions based in the U.S., including branches of foreign companies, and also sets U.S. monetary policy.
The main way it does the latter is through its target interest rate. This benchmark influences the pace of economic growth, the level of employment and the price of goods, services and assets around the world. As the engine behind the world’s most important economy, the Fed’s influence is hard to overstate.
As a result, the Fed affects the likelihood that you – and millions of others around the world – will keep your job, will be able to afford a new home and will be able to retire when you want. And while most Fed decisions are made by a seven-member Board of Governors, the chair’s voice is by the far the most important. For this reason the Fed chair is sometimes referred to as the “second-most-powerful person in the world” – after the U.S. president