Who Will Lead the Fed? A Look at Trump's Five Finalists
October 17 2017 - 2:43PM
Dow Jones News
By WSJ Staff
President Donald Trump is considering five finalists to run the
Federal Reserve and plans to announce his nominee before leaving
for a trip to Asia on Nov. 3, a White House official said Tuesday.
Mr. Trump is considering offering Fed Chairwoman Janet Yellen the
chance to stay in the job after her current term as chief expires
in February and is meeting with her Thursday. He also is
considering nominating Gary Cohn, director of the National Economic
Council; Fed governor and former Treasury Department official
Jerome Powell; Stanford University economist and former Treasury
official John Taylor; and former Fed governor Kevin Warsh.
Yellen, the Continuity Candidate
Picking Ms. Yellen would signal confidence in her handling of
central-bank policy and the economy, including her slow and
cautious unwinding of the Fed's crisis-era stimulus policies. It
also would follow the tradition in recent decades of a new
president reappointing the incumbent Fed leader installed by a
president of the other party.
Ms. Yellen, who became chairwoman in early 2014 when short-term
interest rates were near zero, led the Fed to raise rates four
times since late 2015 and to launch the process of shrinking the
central bank's $4.2 trillion in bondholdings acquired to lower
long-term rates. The Fed signaled in September it expects to keep
lifting borrowing costs gradually through 2020. Meantime, the U.S.
economy is growing at a steady if moderate pace, the unemployment
rate fell to 4.2% in September, the lowest level since 2001, and
U.S. financial markets have taken the Fed's policy moves in
stride.
Gary Cohn, an Unknown on Monetary Policy
Mr. Cohn has been a central figure in the administration's
efforts to roll back regulations and cut taxes, but has provided
few public clues of what he thinks about monetary policy or the big
economic issues the Fed leader faces.
He has criticized forward guidance, or verbal efforts by central
banks like the Fed to prepare markets for their envisioned policy
path. Mr. Cohn said at an event in March 2016 that such measures
have often confused markets.
Mr. Cohn joined Goldman Sachs as a metals trader in 1990 and
became a partner in 1994. He served as Goldman's operating chief
from 2006 until he joined the Trump administration earlier this
year.
Mr. Trump said in July that Mr. Cohn was a front-runner for the
job, but Mr. Cohn fell out of favor with Mr. Trump for criticizing
his response to violence at a white supremacist rally in
Charlottesville, Va., in August. However, Mr. Cohn has remained in
the running.
Powell, Continuity on Rates but More Open to Deregulation
A Powell-led Fed likely would continue Ms. Yellen's slow
approach to raising rates and reducing the bond portfolio very
gradually, but have a lighter touch on financial regulation. During
his five years at the Fed, Mr. Powell has been a reliable ally of
Ms. Yellen. He has never dissented on a monetary policy vote and in
speeches hasn't deviated far from the board's consensus.
But he has advocated loosening some of the banking rules
included in the 2010 Dodd-Frank law, a position that meshes with
Mr. Trump's deregulatory agenda. Mr. Powell has suggested softening
the Volcker rule barring banks from using their own money to make
risky bets, and easing some bank stress tests. He also has endorsed
reviewing some of the supervisory duties imposed on the boards of
directors of banks to prevent them from being burdened with "an
ever-increasing checklist."
"More regulation is not the best answer to every problem," Mr.
Powell said in a speech in early October.
Taylor, a Vocal Fed Critic
Mr. Taylor, a longtime adviser to Republican presidents and
presidential candidates, has been an outspoken opponent of the
Fed's easy-money policies adopted to stimulate the economy during
and after the financial crisis. He is perhaps best known for his
"Taylor Rule," which was first spelled out in 1993 and provides a
mathematical formula to set interest rates. Central bankers have
used the rule as a benchmark against which to measure their own
policy, but they have been hesitant to bind themselves to it. The
rule would have called for considerably higher interest rates than
the Fed put in place in the years since the crisis. Mr. Taylor has
spent the past few years calling for higher interest rates.
He has criticized the Fed's bond-buying programs, arguing that
driving down longer-term bond yields would make lenders less likely
to extend credit and hold down economic growth.
On fiscal policy, Mr. Taylor has advocated shrinking the federal
deficit as a way to boost economic growth even in the aftermath of
recessions. He has argued that reduced government spending would
reduce the need for higher taxes in the future, prompting more
private investment today.
Warsh, a Fed Critic With Crisis-Fighting Experience
Mr. Warsh, a former Morgan Stanley executive who served on the
Fed board during the financial crisis, has positioned himself as a
conservative proponent of tighter monetary policy. He has expressed
skepticism of central-bank rate policy and communications,
criticized its asset-purchase programs, and accused officials of
"trying to fine-tune the economy."
In a December 2016 speech, Mr. Warsh criticized the Fed for
straying from its mission of maintaining stable and low inflation.
He chided the Fed for relying too heavily on short-term economic
data when making policy decisions. "The Fed needs to stay out of
politics, stick to its mission and reform its strategy, operation,
communications and governance, and in so doing the weight and
responsibility for the economy will have to be picked up by someone
else," he said.
Mr. Warsh served as an economic adviser to President George W.
Bush before joining the Fed in 2006. After the crisis began, Mr.
Warsh was part of then-Fed Chairman Ben Bernanke's war room of
officials who would brainstorm over ideas before Mr. Bernanke
floated them with all Fed policy makers.
(END) Dow Jones Newswires
October 17, 2017 14:28 ET (18:28 GMT)
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