Will The Next Fed Chair Be “Taylor-Made” For The Position?

In the midst of everything else that is making headlines in Washington, D.C., of late, one of the more interesting storylines concerns who the next Federal Reserve (Fed) chair will be. As a reminder, the term of the current chair, Janet Yellen, is scheduled to end on February 3, 2018. The process for finding a potential successor (or maybe not if President Trump decides to reappoint Yellen) is apparently well underway, with a variety of candidates being interviewed.

Although when he was on the campaign trail, then-candidate Trump seemed to intimate that Yellen would not be reappointed, apparently she is one of the candidates being considered. The remaining names that reportedly are on the short list are the current Fed governor Jerome Powell, the ex-Fed governor Kevin Warsh and Stanford University economist John Taylor. A few months ago, Gary Cohn, director of the National Economic Council, was considered to be in the running, but according to recent press reports, his star has faded.

So, is there a front-runner as I write this blog post? Interestingly, depending on the week, or even the day, the names change on a regular basis. At the outset, the markets seemed to operate under the assumption that Cohn was out in front, but that line of thinking then turned to Warsh as a potential favorite. Lately, there has been a back and forth between Taylor and Powell, but just last week, it was reported that Yellen was seen for a second White House visit following her formal interview. The latter point is a perfect case of “Fed Chair intrigue”. While Yellen may have been brought back for another meeting with the president, remember that she still is the reigning Fed chair as well, and such a meeting may have been related to current policy.

The financial markets always seem to have a preconceived notion regarding how a “next Fed chair” would tend to lean from a policy perspective, either hawkish (more aggressive about raising rates) or dovish (less aggressive on the rate front.) In my experience, the track record on these preconceived notions can leave a little to be desired. At times, events or developments occur that call for a decision-making process that requires fresh thinking, with past policy biases being rendered unhelpful.