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Search set to begin for next Fed chief

WASHINGTON

Federal Reserve Chair Janet Yellen’s appearance before a congressional committee last Wednesday had, at times, the feel of a retirement send-off.

“Do you anticipate that this will be your last time testifying before this committee?” Rep. Sean Duffy, a Republican from Wisconsin, asked.

“My term expires in February, and so it may well be,” she responded with perhaps just a hint of wistfullness.

President Donald Trump has a chance to reshape the leadership of the world’s most influential monetary authority, and few observers think he’ll pass up the opportunity to bring in new blood. While he hasn’t ruled out reappointing Yellen to another four years, some Fed watchers aren’t giving her much of a chance. So who might be next to helm the world’s central bank? Here’s a short list of possible candidates whose names are floating around Washington.

Gary Cohn, Trump’s senior economic adviser, has garnered the most recent attention after Politico reported that he’s the leading candidate. He was previously reported to be in charge of the search for the next Fed chair. Cohn, 56, has said he’s not interested in the position, and White House spokeswoman Sarah Huckabee Sanders said that he’d “been pretty clear that he loves his job and he’s happy doing what he’s doing.”

Before joining team Trump, he worked at Goldman Sachs Group for more than 25 years, including a decade as president — a line in his resume that will surely attract ire from Democrats if he’s nominated. While at Goldman he criticised the Fed for pumping liquidity into the financial system to stimulate the economy while simultaneously telling banks they needed to build up capital and be careful lending it out.

Another potential candidate is Kevin Warsh, a Fed governor from 2006 to 2011 who drew on his Wall Street experience at Morgan Stanley to play a key behind-the-scenes role in efforts to quell the financial crisis. He’s been a vocal critic of the central bank since then, advocating widespread changes in how it carries out monetary policy and communicates with the public.

As a fellow at the Hoover Institution, Warsh, 47, was a member of the business-advisory council that met with Trump in February. He’s also married to cosmetics heir Jane Lauder, daughter of Trump friend Ronald Lauder.

Warsh’s candidacy is taken seriously enough that he’s also attracted vigorous opposition from left-leaning activists, particularly for his cheerleading prior to the financial crisis of Wall Street innovations that they say helped cause the collapse.

John Taylor, another critic of the Yellen Fed, is also an oft-mentioned candidate to replace her. A professor at Stanford University, he’s best known for the monetary-policy rule he developed in 1993 that links changes in interest rates by the Fed to the state of the economy and inflation.

Taylor, 70, has argued that the Fed’s been too loose with monetary policy and too subject to the discretion of policy makers. He has supporters in the House, where Republican lawmakers have pushed legislation requiring the Fed to follow the Taylor rule or something like it.

Taylor has, however, a rather hawkish reputation that might scare off a president who has described himself as “a low interest-rate” person.

Another candidate who favours a rules-based policy is Glenn Hubbard, dean of Columbia University’s business school and President George W. Bush’s chief economist from 2001 to 2003. Hubbard, 58, played a key role in fashioning tax-cut packages that reduced rates on wages, dividends and capital gains. Though he has few ties to Trump, Hubbard did co-author a book on economic policy in 2010 with the president’s trade adviser, Peter Navarro.

Current Fed Governor Jerome Powell is seen as a long-shot, but not out of the running. The only Republican currently on the Board of Governors, Powell, 64, has a solid reputation among lawmakers from both parties and has ably led the Fed’s regulatory efforts, albeit on a temporary basis, since Daniel Tarullo retired in April.

Before joining the Fed, Powell spent eight years at private equity firm Carlyle Group. He also served as a senior official at the US Treasury under President George HW Bush.

It may be unwise to completely rule out Yellen. She has, after all, kept interest rates at or near record lows since taking the job in 2014.

Trump might yet decide he prefers a dove. Still, Trump isn’t likely to decline the chance to appoint the world’s most powerful economic policy maker.

“This president is absolutely consistent in wanting his own people, and he considers these people working for him,” said Mark Spindel, a co-author of a book on the Fed titled “The Myth of Independence” that will be published in August by Princeton University Press.

After listening to Yellen’s testimony on Wednesday, Spindel added, “There is nothing in her answer to suggest she is eager to stay.”

Yellen or not, there’s one more reality to confront when guessing who might be Fed chair come February 2018: The person doing the appointing has been hard to predict and he’s not taking much advice from the usual constituencies who offer up names for top Fed jobs.

Some key Republicans on Capitol Hill pushed hard for FDIC Vice Chairman Thomas Hoenig to be the central bank’s vice chairman for supervision. Hoenig’s candidacy went nowhere. This week the White House announced Trump would nominate Randal Quarles, a senior Treasury official in the George W. Bush administration, for the post.

“It’s just so hard to know what direction he will take,” Harvard University professor Kenneth Rogoff told a July 11 meeting of the National Economists Club in Washington, referring to Trump.

Rogoff said he’s worried the president may nominate someone who’ll go all-out for economic growth in the short run to boost Trump’s re-election chances, and undermine the credibility of the Fed in the process.

“I’m nervous we’ll get a gold bug or somebody like that,” Rogoff said.

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