The role of Chair of the Federal Reserve is an exclusive role, more so in fact than President of the United States. Since the end of World War 2, there have been just nine Federal Reserve chairs compared to fourteen presidents. Thus the hype around President Donald Trump's nomination for the role, which is due in the next week is warranted. 

Succeeding Ben Bernanke in 2014, Fed Chair Janet Yellen remains a candidate to serve a second term. She has overseen the tough task of ending quantitative easing (QE), raising interest rates for the first time in nearly a decade, and beginning to reduce the Fed's $4.5 trillion balance sheet. However, as a natural dove and someone who leans Democrat, Yellen is not at the top of the list of likely nominees. Aside from Yellen, the three front-runners are Kevin Warsh, Jerome Powell, and Gary Cohn.

Courtesy: Bank of America

Kevin Warsh

Warsh is a lawyer by trade but spent his early years working as an investment banker at Morgan Stanley. Warsh is no stranger to the Federal Reserve, having served as a Fed Governor from 2006 to 2011 during the heart of the Great Recession. As a wealthy Republican and someone who favors substantial banking deregulation, Warsh would be a logical choice by President Trump. 

Warsh has been a critic of the accommodative monetary policy in the past. However, should he be picked, expect status quo in the short-term. "If appointed, he is unlikely to immediately change the stance of policy and would continue to call for a gradual increase in interest rates and reduction in the balance sheet," Bank of America said in a recent note. (See also: How Will the Fed Reduce its Balance Sheet?)

Warsh is currently a lecturer at Stanford University. 

Jerome Powell

Powell has served as a Fed Governor for a little over five years and was part of both the QE3 decision and the normalization of interest rates. Like Warsh, Powell is a lawyer by trade, graduating from Georgetown University in 1979. Before serving as a Fed Governor, Powell spent eight years in private equity and before that he served as a visiting scholar at the Bipartisan Policy Center in Washington, D.C. 

As a policy advisor, Powell is a centrist, aligning with Yellen on a number of issues such as balance sheet normalization and inflation concerns. Powell favors some banking deregulation that includes unwinding part of the Volker Rule. 

Gary Cohn

Cohn has spent the majority of his life in banking at Goldman Sachs where he specialized in tax reform. Today, Cohn is the Director of the National Economic Council and Chief Economic Advisor to the President. Despite being the more dovish of the three, Cohn was seen as the favorite to win the nomination for a long time. However, many believe Cohn has fallen out of favor after he was critical of Trump's remarks on the Charlottesville riots telling the Financial times that the administration "can and must do better" to condemn hate groups. 

If chosen, Cohn would not rock the boat. He is in favor of remaining accommodative to alleviate any appreciation in the dollar or weakness in equity prices. 

Take Away

As the Fed begins the task of unwinding its balance sheet, policy thinking is as important as it has ever been. Throughout the financial crisis, a swift reduction in interest rates was the only option, and while the experiment of quantitative easing was the first of its time, the task to unwind it and normalize interest rates at a time where many observers are muttering the words "equity bubble" is nothing short of formidable. Given this, the pending nomination for Fed Chair could shape monetary policy for years to come. 

 

 

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