Blog Economists versus lawyers

Posted by: Paul Donovan

20 Dec 2019
  • In 2019 Fed Chair Powell and ECB President Lagarde took over leadership of the world's two major central banks. Both are lawyers, not economists. Does that matter? It does.
  • Today's investors have only known economist-run major central banks. Financial markets are used to focusing on the central bank head to set the policy rules. This is not about rate decisions. This is about the intellectual approach to policy. The idea behind the Fed's "Volcker Shock" in 1980 needed Fed Chair Volcker's academic leadership. Bond buying in 2008 needed Fed Chair Bernanke.
  • Having a lawyer run a central bank changes the focus. Lawyers are often great at regulation. Regulation is more important. Any intelligent person should be able to make monthly policy decisions once policy rules are set out. But non-economists may struggle to set out the intellectual policy rules themselves. Investors, used to a single person setting out the rules, are now adrift. Who leads the intellectual rule setting, if not the Fed Chair or the ECB President?
  • In a perfect world, economists would run everything (of course). Until we reach that utopia, having lawyers run central banks is not necessarily a bad thing. What matters for markets is that it is a different thing.

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