Four Candidates Vie So Far to Be Federal Reserve Chief
October 12 2017 - 8:58PM
Dow Jones News
President Donald Trump has said he will soon decide whom to
nominate to run the Federal Reserve when current Fed Chairwoman
Janet Yellen's term expires in February. He has said he is
considering offering her a second term, and he has discussed the
job with at least three other candidates: 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
would also 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 in September to launch the process of
shrinking the central bank's $4.2 trillion in holdings of bonds
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.
Powell, Continuity on Rates But More Open to Deregulation
A Powell-led Fed would likely continue Ms. Yellen's gradual
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 has also 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," first spelled out in 1993 that provides a
mathematical formula to set interest rates. Central bankers have
long 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
deep 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 12, 2017 20:43 ET (00:43 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.