U.S. stock investors' fate - and the future of the eight-year bull market - may depend on who becomes the next leader of the Federal Reserve, housed in an imposing 80-year-old, white-marbled neoclassical edifice in Washington.

Current Federal Reserve chair Janet Yellen would do the most to extend the length of the bull stock market, if President Trump reappoints her to another four-year term, according to a survey of big investors cited by the Wall Street Journal. Her term ends on February 3, and Trump is expected to announce his choice for one of the world economy's most powerful posts before starting his trip to Asia on November 3.

Five candidates reportedly are under consideration by Trump, per the Journal. They include Yellen, Fed governor Jerome Powell, economist John Taylor, former Fed governor Kevin Warsh, and White House economic advisor Gary Cohn. The survey was conducted by Evercore ISI, the research division of independent investment banking advisory firm Evercore Inc. (EVR), and had 144 respondents, the Journal says.

Janet Yellen, "The Dove," 20% Odds

From the time that Yellen took office on February 3, 2014, through Tuesday's open, the markets have soared: S&P 500 Index (SPX), up 44%; Dow Jones Industrial Average (DJIA), up 49%; and the Nasdaq Composite Index (IXIC), up 61%. Her gradual approach to unwinding the Fed's massive $4.5 trillion balance sheet is keeping monetary conditions loose, and thus propping up the markets. If she is reappointed, the dollar is likely to decline in value as a result of continued low interest rates, survey respondents say.

Though Trump criticized her during the campaign, he has made positive remarks about her this year, and recently mentioned her as one of three candidates on his short list, according to another Journal article. Meanwhile, Yellen's predecessor, Alan Greenspan, believes that she has perpetuated a massive bubble in financial assets. (For more, see also: Stocks' Big Threat Is a Bond Collapse: Greenspan.)

Jerome Powell, "The Quiet Man," 29% Odds

Powell is rated as the front runner by survey respondents, with 29% odds of being named chairman. Currently a member of the Fed's Board of Governors, he is a former investment banker and was a high-ranking official in the U.S. Department of the Treasury under President George H.W. Bush. Under his leadership, the Fed is likely to maintain its current policy of lifting interest rates cautiously, according to analysts cited by the Journal. Powell also is on record as favoring the rollback of various bank regulations imposed after the 2008 financial crisis, including the Volcker Rule, which limits proprietary trading. The consensus of analysts cited by the Journal is that Powell would have "subdued impact" on the markets, including a modest increase in stock prices.

Kevin Warsh, "The Disruptor," 22% Odds

Warsh, also a former investment banker, was on the economic policy advisory team for President George W. Bush, and served as a Fed governor during the financial crisis. He currently is a visiting fellow at Stanford University. He is very hawkish on inflation, making it likely that he will favor significant interest rate hikes and a quick unwinding of the Fed's balance sheet, per analysts cited by the Journal. This would boost the value of the dollar, but depress stock prices. He also is likely to endorse significant financial deregulation, those analysts say.

A recent opinion piece in the Washington Post, meanwhile, criticized Warsh as a cheerleader for supposedly innovative financial products, such as credit default swaps, which fueled the financial crisis. 

John Taylor, "The Hawk," 20% Odds

Taylor, a professor of economics at Stanford, has been mentioned as a possible future Nobel Laureate. He is best known for devising the Taylor Rule, a proposed guideline for central banks such as the Fed. The rule relates targeted levels of interest rates, inflation, and unemployment. He has become known as a policy hawk, having criticized the Fed for keeping interest rates too low, the Journal says. If the Taylor Rule were applied, interest rates would be more than a percentage point higher than they are today, the Journal adds, a scenario that would strengthen the dollar, but depress bond and stock prices.

Gary Cohn, "The Deregulator," 9% Odds

Cohn, formerly president of Goldman Sachs Group Inc. (GS), is currently the chief economic adviser to President Trump, as director of the National Economic Council. He has criticized Yellen for raising interest rates, suggesting that he would be the most stimulative choice for stocks, the Journal says. He also favors deregulation and fiscal stimulus, in line with Trump's policy prescriptions.

Winning Trump's vote is half the battle for these candidates. The nominee then goes to the Senate for extensive grilling on his or her thinking on the economy and monetary policy, and then a vote on confirmation.

 

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