A New Fed Chairman?

A New Fed Chairman?

For reasons only known to himself the president is making noises about naming a new Fed chair to replace incumbent Jay Powell. Mind you, Powell’s term as chairman of the Fed doesn’t end until May 2026 and his term as a governor doesn’t end until 2028. That means if Trump names someone other than a sitting Fed governor, he needs Powell to resign when his term as chairman expires. If Powell elects to stay, then Trump’s announced replacement would need another governor to resign to open up a slot at the Board.

So the question is why so early? Kevin Warsh is the clubhouse favorite although I would bet that he would not be the nominee. His view of the role of the Fed is a traditional one (pre-Bernanke) and he would be no rubber stamp for the president. He would also move to return the Fed to monitoring monetary aggregates rather than its obsession with interest rates and conduct less discretionary monetary policy. Since Trump loves to talk about interest rates and favors more Fed interference in markets, Warsh would not be a logical choice (assuming Trump is logical in this instance).

Other possibilities currently bandied about are David Malpass, Christopher Waller and Treasury Secretary Scott Bessent. Again I would bet that none of these winds up as the nominee. Mind you whoever is nominated is going to carry the suspicion of being Trump’s toady and would face a very difficult and contentious senate confirmation process. But lets briefly look at each of the above. David Malpass has solid credentials. He was president of the World Bank, chief economist at Bear Stearns, and has held positions in the Reagan, Bush and Trump administrations. On the plus side he was a critic of all the Fed’s quantitative easing during the Obama years. He was also an advisor to Trump’s first campaign and became under secretary of the Treasury for International Affairs. Malpass is not an Ivy Leaguer – thank goodness – with degrees from Colorado College and the University of Denver. Interestingly, he does not have a PhD.

Christopher Waller is a sitting governor at the Fed. If Powell decided to stay on as a governor, Waller might be the choice although I think another governor, Michelle Bowman would be a possibility. Waller is the only governor who actually knows something about monetary economics. He had been research director at the Federal Reserve bank of St. Louis which is the only bank in the Fed system known for its study of monetary aggregates and monetary theory. Again, he is no Ivy Leaguer with a PhD from Washington State University. Waller has studied cryptocurrencies and is opposed to the United States having a central digital currency although he has expressed some support for stablecoins. Waller would be a solid choice although Trump might not nominate him since he (Waller) has been one of those on the Open Market Committee which has not heeded to Trump’s demands on lowering the Fed funds target rate.

Then there is Treasury Secretary Scott Bessent. He would face the most difficult confirmation process given his relationship with Trump. Bessent has been a good soldier and has publicly endorsed all Trump’s economic views – however dumb. Would Bessent leave Treasury for the Fed? I certainly would. He would have more independence at the Fed and no longer be tied to Trump. Maybe he should ask Janet Yellen which job was more fun. Others do not share my opinion. Someone named Neil Dutta, head of economics at someplace called Renaissance Macro Research says, “The Treasury job is probably a lot more fund that the Fed job unless you want to live in DC forever and manage a bunch of PhDs at the Fed while being a prop for a Representative’s viral prop at a hearing. I am not sure why someone like Bessent would take the job.” Excuse me, Mr Dutta but you are an idiot.

I cannot not see an upside to naming a nominee this early. The long knives will be out and this gives them a year to conduct a smear campaign. These would be the first Fed confirmation hearings on par with that of a Supreme Court nominee. If I were picking I would choose Stanford’s John Taylor or the Hoover Institution’s John Cochrane. Both would be great which means that neither would be nominated.