Posted with permission from AFP
Longtime Federal Reserve chair Alan Greenspan used famously impenetrable language, but nonetheless tanked global stocks in 1996 when he warned about "irrational exhuberance" among investors, illustrating the power of the US central bank chief AFP / SAUL LOEB

The head of the US central bank, due to be named Thursday afternoon by Donald Trump, holds vast sway over the global economy, and can make markets tremble with the slightest comment.

Trump is expected to name current Fed Governor Jerome Powell, who has the advantage of being a Republican like the president, to replace Janet Yellen, whose term expires in February.

Yellen, who was appointed chair of the Federal Reserve by then-President Barack Obama in 2014, took a steady and cautious approach but achieved widely praised results: low unemployment and GDP growth of three percent or more in the past two quarters, without a resurgence of inflation.

But some of Yellen's predecessors have watched as a casual comment sent shudders through the world economy.

Perhaps the most famous example was longtime Fed chief Alan Greenspan's phrase "irrational exuberance," uttered in 1996. Global equities markets, fueled by the "dot com" boom, nosedived.

The remark was prescient: tech stocks crashed in 2000.

Greenspan, who chaired the central bank for more than 20 years and was famous for his careful and sometimes impenetrable language, later wrote that the phrase occurred to him as he composed his remarks in the bath, something he was also famous for.

Ben Bernanke, who replaced Greenspan in 2006, entered into the record books not only for managing the Fed's unprecedented response to the global financial crisis of 2008 but also for, perhaps casually, announcing the plans to begin to slow the Fed's bond-buying stimulus program in 2013.

His remarks touched off what became known as the "taper tantrum" because of the shock waves it sent through emerging markets.

The Fed's periodic decisions on monetary policy, which can directly influence the value of the US dollar, the global reserve currency, also can run counter to the political wishes of the White House.

Even though the president nominates the Fed's chair and six other board members, and the chair must appear before Congress twice a year, the central bank has the independence to set monetary policy.

Among the most famous examples was Paul Volcker, who, after taking up the leadership of the Fed in 1979, immediately launched a cycle of interest rate hikes intended to bring rampant US inflation under control.

This preceded a global recession. But the US president at the time, Ronald Reagan, nevertheless decided to reappoint Volcker, a Democrat, in 1983, noting that the Fed chair enjoyed the support of financial markets.

In fact, Trump will be the first president in more than 40 years to fail to reappoint the Fed chief put in place by his predecessor.