Keeping White House traditions isn't really Donald Trump's thing, but in choosing someone to chair the Federal Reserve, the 45th president came close.
Tradition would have been renominating the sitting chair, as Presidents Barack Obama, George W. Bush, Bill Clinton, George H.W. Bush and Ronald Reagan all did. But Trump, who criticized Janet Yellen's Fed on the campaign trail and praised her once in office, wanted to pick the U.S. central bank chief himself.
So he chose Jerome Powell, a Fed governor for the past five years who has been intimately involved in raising interest rates from nearly zero and starting to a pare a balance sheet that ballooned to $4.5 trillion as the central bank snapped up securities to buoy the economy after the 2008 financial crisis. If confirmed by the Senate, the 64-year-old would move into the new role in February, when Yellen's term expires.
"The only thing that would have been a bigger non-event is if Donald Trump had continued to have Janet Yellen stay on," Sandeep Dahiya, a professor at Georgetown University's McDonough School of Business, said in a telephone interview on Thursday, Nov. 2.
Trump's choice was a pivotal one for Wall Street banks from JPMorgan Chase & Co. (JPM - Get Report) to Bank of America (BAC - Get Report) and Goldman Sachs Group Inc. (GS - Get Report) , since the Fed chair plays a role in determining monetary policy as well as regulating the largest U.S. lenders.
Yellen has generally supported making only moderate adjustments to the stricter rules imposed on banks after the 2008 financial crisis, a position at odds with Trump's plan to loosen regulations more broadly.
Powell, who also "supports the core elements of the post-crisis reforms affecting large banks," has indicated an openness to modifying the annual stress tests that determine the size of dividends and share buybacks as well as the Volcker Rule's ban on proprietary trading, Goldman economist Jan Hatzius said in a note to clients. "Overall, he is likely to bring a somewhat lighter touch to financial regulation."
Trump's White House disclosed its finalists for the role of Fed chair in October, and the president said in an Instagram video last week that he had settled on a nominee who "hopefully will do a fantastic job."
People are anxiously awaiting my decision as to who the next head of the Fed will be....
— Donald J. Trump (@realDonaldTrump) October 27, 2017
Other possibilities included former Fed Governor Kevin Warsh, National Economic Council Director Gary Cohn, the former COO of Goldman Sachs; Stanford University economist John Taylor and Yellen.
Few positions in the U.S. government are more important than the post of Federal Reserve chair, Trump said Thursday in a Rose Garden speech.
To retain the economic progress that Trump credited his administration with making so far, "our economy requires sound monetary policy and prudent oversight of our banking system," Trump said. "That is why we need strong, sound and steady leadership at the U.S. Federal Reserve."
Powell's roles prior to joining the Fed include serving as Undersecretary of the Treasury under the first President Bush, working as a lawyer and investment banker in New York City and holding the post of partner at The Carlyle Group.
He has a bachelor's degree in politics from Princeton University and a law degree from Georgetown, but unlike his most recent predecessors, lacks a doctorate in economics.
While both tradition and Yellen's performance indicated that she deserved another term as chair, "our reading of the situation indicated that the Trump administration would prefer to go in a different direction, for better or worse," Barclays (BCS) economist Michael Gapen said in a note to clients.
"We expected the administration to seek pragmatic candidates with private-sector experience," he noted, which Powell, Cohn and Warsh all have.
Should Trump also decide to move another of his finalists into one of the three vacancies on the Fed's board, Taylor, a monetary policy hawk, might be appointed vice chair, Deutsche Bank (DB - Get Report) economist Peter Hooper suggested.
In that case, Taylor would "be guarding the chair's hawkish flank, and likely succeeding in pushing policy modestly in that direction," Hooper wrote.
Taylor had criticized the central bank for keeping policy rates too low for too long after the 2008 crisis, the economist said. Indeed, the central bank has raised interest rates only four times since the crisis, starting in 2015 when rates were nearly zero.
While Yellen could stick around after her term as chair expires, remaining on the seven-member board of governors until 2024, Georgetown's Dahiya considers that unlikely.
"It's very strange to have your ex-boss in the room," he explained. "It would be very uncomfortable for Mr. Powell, and I can guess it would be very uncomfortable for Ms. Yellen. She's a very respected academician. I'm sure she would have wonderful options."
Trump's decision not to reappoint Yellen was a disappointment, said Sen. Sherrod Brown of Ohio, the highest-ranking Democrat on the Senate Banking Committee.
"She has done an excellent job leading the Federal Reserve, contributing to one of the longest economic expansions in U.S. history," he added in a statement, while noting that he looks forward to learning more about Powell's plans.
"Given the Fed's role in implementing the post-crisis rules for Wall Street, I hope Mr. Powell won't have the same amnesia that plagues the rest of the administration," he said. "Many Ohioans are still paying the price for the financial recklessness that the Fed ignored a decade ago."
Indeed, Trump's decision not to reappoint Yellen shows he cares more about dismantling Obama's legacy than creating jobs, boosting wages or preventing another financial crisis, Sen. Elizabeth Warren, a Massachusetts Democrat, said in a statement.
"Janet Yellen has been one of the most successful Fed chairs in history and she deserved to be re-nominated -- just as every prior Fed chair has been re-nominated, regardless of party, since 1979," Warren said in a statement. "While Jay Powell is on record supporting most of Chair Yellen's efforts to put more people to work and strengthen financial rules, I want to know if he will continue those efforts as chair of the Federal Reserve."
Powell, for his part, recognized in a brief speech on Thursday the work done during the past decade by both Yellen and Bernanke.
"By many measures, we are close to full employment and inflation has gradually moved up toward our target," he said in remarks following Trump's. "Our financial system is also without doubt far stronger and more resilient than it was before the financial crisis. Our banks have much higher capacity and liquidity, they're more aware of the risks that they run and they're better at managing those risks."
If confirmed, Powell said, "I will continue to work with my colleagues to ensure that the Fed remains vigilant and prepared to respond to changes in markets and evolving risks."
Updated from 3:09 p.m. ET on Thursday, Nov. 2, 2017.
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