- Trump is down to five candidates for Fed chair; Kevin Warsh and Jerome Powell appear to be favorites.
- Warsh comes from a politically influential family, but may be seen as too young.
- Powell, a current Fed governor and a former private equity magnate, would signal continuity.
Donald Trump has indicated he is close to making a decision on arguably his most powerful economic appointee: the next chair of the Federal Reserve.
While the president has dangled the possibility of reappointment before current chair Janet Yellen, her chances are seen as slim — she’s a liberal Democrat who has voiced concern about Trump’s desire to roll back post-crisis financial rules she was charged with implementing.
The two favorites are Jerome Powell, a former private equity magnate now on the Fed’s board, and Kevin Warsh a former Fed governor and Morgan Stanley banker whose wealthy family is a major Republican donor.
Also on the list, but unlikely as picks, are John Taylor, a former Treasury official under George W. Bush who has advocated for raising rates sooner and more quickly and Gary Cohn, head of the president’s National Economic Council.
Cohn was long seen as a shoo-in for the Fed position, but then he voiced some concern about Trump’s non-condemnation of Nazis after after the violence in Charlottesville, Virginia, in August, leading to a falling out between the two. Another reason to doubt Cohn’s appointment is that Trump really needs him around if he wants to try to pass his tax cut plan. Cohn is a former president of Goldman Sachs.
Here are more details about Trump’s Fed chair final five:
Powell spent most of his career at the Bush-family-linked private equity Carlyle Group, amassing millions of dollars. He is the richest member of the Fed’s board. Powell has been a centrist on monetary policy, always voting inline with the committee as most board members do. However, he has expressed a willingness to rollback some post-crisis rules, which is sure to please Trump.
Warsh’s appointment to the Fed’s board in 2006 was seen as controversial due to his youth and lack of experience. As a governor, Warsh was an ally of ex-chairman Ben Bernanke in dealing with Wall Street during the 2008 financial crisis, but he was also deeply critical of the Fed’s bond buying program, even though he repeatedly voted to approve it. Warsh was also very wrong about the risk of imminent inflation from the Fed’s actions. In reality, the central bank continues to undershoot its 2% inflation goal some nine years into the recovery.
Both academic and Wall Street economists overwhelmingly favor Yellen’s reappointment, not just for the sake of continuity, but also because she is by far the best qualified and experienced candidate. She has managed to walk a middle ground within a somewhat divided central bank and was the first woman to be appointed to lead the central bank in its more than 100-year history. Her successful first four-year tenure should, in a reasonable world, lead to a no-brainer reappointment.