Who should run the Fed?
Richard Portes on why the next Federal Reserve chair matters far beyond Washington
The US President is expected to name a new Chair of the Federal Reserve this month, a decision with consequences that will ripple far beyond American borders. Speaking on the BBC Today programme, London Business School's Professor Richard Portes warned that the choice will matter just as much in London as it does in Washington.
US interest rates, Portes explained, shape the US stock market, which in turn influences global markets, including the UK’s. More directly still, American interest rate decisions feed quickly into UK borrowing costs. History shows this link clearly and repeatedly. “It matters for us over here,” he said. “We have plenty of historical evidence for that.”
But the issue is not only where rates go. It is also about the independence of central banks. Portes pointed to the 1970s, when Federal Reserve Chair Arthur Burns bowed to political pressure from President Richard Nixon to loosen policy. The result was a surge in inflation in the US that spread internationally. The lesson, he argued, remains highly relevant today.
Trust is central. Investors around the world need confidence that interest rate decisions reflect economic realities rather than political demands. That credibility underpins market stability far beyond the US.
Several names are reportedly under consideration to replace Jerome Powell, including Kevin Hassett, Kevin Walsh and Chris Waller. While each would bring a different approach, Portes cautioned against overestimating the power of any one individual. The Federal Reserve Chair is just one member of the Federal Open Market Committee and must build consensus to be effective. Powell, he noted, has been particularly skilled at this, but it is not yet clear whether his potential successors share that strength.
As the appointment approaches, the stakes are high. The next Fed Chair will shape not only US monetary policy, but also global financial conditions at a moment when trust and stability matter more than ever.
The interview took place at 7:26am on Monday 5 January 2025