Who will replace Janet Yellin as Fed Chair?
Who
will replace Janet Yellin as Fed Chair?
By MONEYWATCH October 9, 2017, 5:15 AM
Retrieved from:
https://www.cbsnews.com/news/who-will-replace-janet-yellen-as-federal-reserve-chair/
After
hammering Federal Reserve chair Janet Yellen mercilessly on the 2016
presidential campaign trail, Donald Trump will soon get to nominate her
replacement. Then-candidate Trump was vicious, saying Yellen should be "ashamed of herself" for doing "political things" by holding interest rates so low for so
long and propping up a "false stock market" in the process.
Since
then, he has modulated his message. President Trump now claims to be a "low interest rate person" and said he respected Yellen
while frequently touting the stock market's post-election surge on Twitter.
With
Yellen's term ending in just four months, Wall Street is gripped by the
questions of who will replace her, what the new chair's policy path will be,
and how that will impact capital markets that have become addicted to the Fed's
monetary policy morphine.
The
drama is made more intense by the policy crossroads the Fed now finds itself
on. Just this month, the Fed will start reducing its bloated $4.4 trillion
balance sheet; launching the process of reversing years of asset purchase
stimulus that started way back in 2009. It's also set to raise interest rates
again in December as labor market tightness (with the jobless rate down to 4.2
percent last month) begins to intensify wage gains -- and thus, it's feared,
wage-push inflation.
Moreover,
the Fed is already light on bodies. Vice-chair Stanley Fischer is resigning
this month. Until Randal Quarles' confirmation by the Senate on Oct. 5, that
left four vacancies on the seven-member Board of Governors. Including Quarles
and assuming Yellen is replaced, Trump will get to nominate five governors
overall and influence the path of monetary policy for years to come.
Prediction
markets currently put former Fed governor Kevin Warsh as the most likely choice
to replace Yellen. The Republican was chosen by President George W. Bush under
a veil of criticism: At the time he was just 35 years old, the youngest
appointment in the history of the Fed. After working closely with then-Fed
chairman Ben Bernanke during the financial crisis, he expressed skepticism for
the post-crisis efforts to use asset purchases to lower long-term interest
rates.
Warsh's
star has risen at the expense of Gary Cohn, the former Goldman Sachs banker and
current Chief Economic Adviser to Trump who's clout is believed to have
weakened in the wake of reported criticism of the president's handling of the
Charlottesville protests.
Warsh
is politically connected (his wife is heiress of the Estee Lauder fortune) and
has generated attention with his recent Wall Street Journal op-ed describing the Fed's recent actions
as "confusing" and "erratic" amid disappointing post-crisis
economic growth despite massive runups in financial asset valuations.
The
crux of the problem, in Warsh's words, is the Fed's obsession with the stock
market under Yellen and Bernanke:
"The
Fed often treats financial markets as a beast to be tamed, a cub to be coddled,
or a market to be manipulated," he wrote. "It appears in thrall to
financial markets, and financial markets are in thrall to the Fed, but only one
will get the last word. A simple, troubling fact: From the beginning of 2008 to
the present, more than half of the increase in the value of the S&P 500
occurred on the day of Federal Open Market Committee decisions."
At
first blush, Warsh's hawkish policy stance seems to be at odds with Mr. Trump's
newfound dovishness. But he shares the president's desire to see post-crisis
regulation on Wall Street rolled back.
Next on
the list for Fed chair is current Fed governor Jerome Powell, who Oxford
Economics notes was "something of a compromise choice" between
President Obama and Republicans in the Senate when he was nominated in 2012.
He's a moderate Republican who replaced Democrat Jeremy Stein. He has expressed
some willingness to ease the Dodd-Frank banking regulations that followed the
financial crisis.
As for
Yellen, she is down in third with just 10 percent odds of hanging on. That's
higher than Cohn, at least.
Expect
a decision soon, as both Bernanke and Yellen were nominated in October (2005
and 2013, respectively) before being confirmed by the Senate in January.
Yellen,
it should be said, hasn't ruled out staying on for another term as chairman. And, separately, her term as a Fed
governor continues into 2024, meaning she could conceivably stick around even
if Trump doesn't want her; although this is unlikely.
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