In today’s episode of The App…roved Fed Governor, we’re taking a closer look at the top candidates for the Fed’s Chairmanship and what they could mean for the Fed’s future monetary policy direction.
Unless you’ve been too busy freaking out over the latest Star Wars trailer, you should know that market bees are abuzz over the top candidates for the Fed’s top spot.
See, Fed Chairman Janet Yellen will finish her term in February 2018. And while it’s customary for POTUSes to reappoint Fed Governors from the previous administrations (at least the first time around), Trump has hinted that he’s already considering other options. In fact, word around the hood is that he will announce his pick near the end of the month.
So, who will get the axe and who will Trump say “You’re Hired!” to? Here are the top contenders:
Kevin Maxwell Warsh is an investment banker and a lawyer who worked his way up Morgan Stanley’s ranks starting 1995.
In 2002 he was tapped by the Bush administration to work on financial regulation (or DE-regulation?). Then, in 2006 he was appointed into the Fed Board of Governors where he battled the financial crisis alongside Ben Bernanke until he resigned in 2011.
Critics point out that Warsh, unlike his immediate predecessors, lacks the economic background to deal with the “big picture” of becoming a Fed Governor. More importantly, they point out that the candidate has been on the wrong side of economic issues over the last decade.
Between 2006 – 2011, for example, Warsh warned against an inflation threat that never materialized. He has also criticized Ben Bernanke’s policies, saying that loose monetary policies have made the Fed a “slave of the S&P.” Considering that Trump likes to tweet about rocketing stock indices, he probably won’t appreciate a Fed head that isn’t too concerned about asset prices.
That doesn’t mean he’s out of the running, however. Warsh favors a “simpler, more transparent” tax code which coincides with the Trump administration’s goals.
He’s also member of the advisory council that Trump disbanded following the Charlotesville brouhaha, and has served as advisor to former Florida Governor Jeb Bush. Last but not the least, he has billionaire Ronald Lauder as his father-in-law, which means he speaks billionnish.
Jerome Hayden “Jay” Powell is a lawyer who became Assistant Secretary of the Treasury under the G.W. Bush administration where he worked on policy for financial institutions among other things.
He is a current member of the Fed’s Board of Governors and has a voting record that’s mostly consistent with Yellen’s gradual rate hike path. Back in late August, however, Powell started singing a different tune, saying that “inflation is a little bit below target” and that
“It’s too soon to make decisions about particular meetings but I think we have the ability – if we keep getting strong growth and a strong labor market – we have the ability to be a little bit patient.”
Back in June Powell also shared that he’s looking into softening the Volcker rule that prevents banks from taking too much risks, and that he’s willing to revisit the supervisory requirements imposed on bank boards of directors after the financial crisis.
Word around the hood is that Treasury Secretary Steve Mnuchin, who is one of the voices Trump will listen to, is currently favoring Powell for the top spot.
Gary David Cohn is an investment banker who served as President and co-Chief Operating Officer of Goldman Sachs from 2006 to 2017. In January 2017 he joined the Trump administration as Director of the National Economic Council and is currently Trump’s Chief Economic Advisor.
Back in July Trump hinted that Cohn is in the running for the post, saying that “I’ve known Gary for a long time, but I’ve gained great respect for Gary working with him, so Gary certainly would be in the mix.” Since then Cohn – who has been in charge of finding the next Fed head – has recused himself from the process.
But that was B.C. – Before Charlottesville. See, Cohn criticised the President after he blamed “both sides” for the violence in the Charlotesville protests. He told a newspaper that “Citizens standing up for equality and freedom can never be equated with white supremacists, neo-Nazis and the KKK,” adding that the administration “can and must do better” to condemn hate groups.
Cohn’s odds reportedly dropped after that even though he shared that he’s “reluctant” to leave his post when he faced calls for resignation. Cohn is also still heavily involved in pursuing Trump’s causes such as tax reform.
Janet Yellen 2.0
The current head honcho isn’t out of the running just yet! As mentioned above, POTUSes tend to reappoint Fed Governors they’ve inherited from the previous administration.
And with the stock markets hitting new highs every time you open your screens, Trump probably won’t want to rock the boat too much.
Another point favoring Yellen’s reappointment is Trump and Yellen making changes to their economic biases. Yellen, who some critics say is too hawkish, has shared two weeks ago that
“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective or even the fundamental forces driving inflation.”
Meanwhile, Trump, who once urged Yellen to be “ashamed of herself” for doing “political things” with low interest rates, shared in June that “I do like a low-interest rate policy” after saying that he “likes” and “respects” the current Fed Governor.
So who’s leading the race?
A closely-watched poll from predictit.org puts Powell in the lead at 36%, which isn’t surprising since the moderate Republican is seen as a compromise between the Obama administration where he was appointed and the Republican Senators who approved his post. Some also point out that he would balance Yellen’s dovish approach and Trump’s deregulation plans.
Powell is followed by Warsh at 22%, Yellen at 13%, and Cohn at 10%. The odds tend to fluctuate by the day, though, so don’t make any bets just yet!