Trump, Mnuchin reported to meet with Warsh to Fed chair
WASHINGTON U.S. President Donald Trump and Treasury Secretary Steven Mnuchin met Thursday with former Federal Reserve governor Kevin Warsh as a potential nominee to be next Fed chairman, an administration official said, as the process of reviewing candidates to lead the U.S. central bank picked up pace.
As part of the search Trump has already met with other contenders, said another administration official, who declined to name the candidates who have sat down with the president. On Friday, U.S. stocks surged to record highs and the dollar rebounded as Treasury yields rose on the reports of the meeting.
Warsh currently is a fellow at the Hoover Institution. Others Trump is said to be considering for Fed chair include the current chairwoman, Janet Yellen, Stanford economist John Taylor, former BB&T Corp. CEO John Allison and Columbia University economist Glenn Hubbard. Trump has said he’s also considering White House National Economic Council Director Gary Cohn.
The contest for the position remains an open race as the president isn’t close to a decision, one of the administration officials said. Cohn and Yellen, whose term as chair ends in February, remain potential candidates and the president’s advisers are trying to assure that he has a range of options, the official said. The selection is one of the most important before Trump, with the central bank responsible for safeguarding the U.S. economy and looked for as a source of global financial stability.
“In terms of policy, I think it is fair to say that Warsh is less dovish than Yellen,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York. “He would be less in favour of fine tuning and more sympathetic to the Fed’s role simply being to operate quietly in the background and let the private sector drive things forward.”
As a Fed governor from 2006 to 2011, Warsh drew on 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 Fed’s monetary stimulus policies since the crisis, arguing the approach hasn’t been effective and may have dangerous side effects.
“I’m confused frankly about Fed’s normalization strategy,” he told Bloomberg Television’s Vonnie Quinn and Mike McKee in May.
“My judgment is, ultimately the Fed’s biggest job is to mitigate the risks of an exponential shock. I see way too much complacency.”
His candidacy is being taken seriously enough that he’s also attracted opposition from leftleaning activists, particularly for his cheerleading prior to the financial crisis of Wall Street innovations.
A close associate of hedgefund billionaire Stanley Druckenmiller, he argues that Fed policy-makers are too complacent about mounting risks in financial markets. Warsh, 47, was a member of a business advisory council established by Trump and led by Blackstone Group LP CEO Stephen Schwarzman. He is married to Jane Lauder, daughter of Trump friend Ronald Lauder and a global brand president at a cosmetic company founded by her grandmother, Estee Lauder.
Despite the market enthusiasm, some investors predicted that Warsh’s nomination would hurt stocks.
“I don’t think a Warsh nomination would bring confidence to the markets and would expect equities to sell off if he was announced,” Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, wrote in a note to clients Friday.
“Normally, the FRB staff assumes the chair knows the ins and outs of monetary economics at least as well as they do. Warsh would not be afforded that assumption.
“That is a big problem.”