Speculation Swirls, Trial Balloons Fly: Who’s Next Up for Fed Chair?

Speculation continues to swirl around the question of who President Trump will appoint as Federal Reserve Chair when Janet Yellen’s term comes to an end in February.

Trump will reportedly meet with Yellen this week to discuss the possibility of her staying on as the head of the central bank. During the presidential campaign, Trump was highly critical of Yellen, saying she is “obviously political,” and accusing her of “doing what Obama wants her to do.”

A number of other names have been floated for the job in recent weeks. The mix includes both “dovish” and “hawkish” contenders. Some of the names bandied about include Fed Governor Jerome Powell, Fed Governor Kevin Warsh, Stanford economist John Taylor, National Economic Council Director Gary Cohn, and Federal Reserve Bank of Minneapolis president Neel Kashkari.

Of course, nobody knows what Trump will ultimately decide. We’ve seen this same swirl of speculation around other appointments. It almost seems like Trump revels in floating trial balloons, throwing out names, and keeping people guessing. It shouldn’t surprise anybody if Trump ultimately comes out of left field and appoints somebody not even on the current speculative list.

During a recent CNBC interview, investment guru Jim Grant said he thinks when everything is said and done, Trump will pick a Fed chair “in his own image” who will create a lot of “cheap credit.”

Donald Trump is on record with the Wall Street Journal this past summer as saying he’s a low interest rate guy. Of course he is. He’s a real estate developer. And what he wants is for the factory chimneys to smoke. He wants a great, big booming economy. And I think that what he therefore wants is a very, very easy Fed.”

On the campaign trail, Trump was critical of the Fed’s easy money policies. He called the stock market a big, fat, ugly bubble. But since the election, Trump has adopted the surging the stock market as his own, embracing the bubble and pointing to it as proof of his success. As Peter Schiff put it in an interview with Joe Rogan earlier this summer, we still have the same crappy economy. The difference is that Trump’s not a candidate anymore.

Grant noted that Trump even flirted with the gold standard during the campaign, but he doesn’t think that’s really part of Trump’s core values.

What he wants is the Trump standard, which would feature great amounts of credit creation, very cheap credit, and very low interest rates.”

Last year, “bond king” Jeffrey Gundlach called the US central bank the “zombie Fed.” He doesn’t seem to have much more faith in a Trumpian Federal Reserve. He made comments during the Vanity Fair New Establishment Summit that dovetail nicely with Grant’s. He said he expects Trump to pick Kashkari.”

He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.”

Gundlach said he thinks Trump needs someone who will keep interest rates low to maintain his populist reputation and help his base voters.

A stronger dollar is not good for achieving that agenda.”

An administration official told CNBC Kashkari was not under consideration – although the administration says a lot of things.

The current thinking on Wall Street has former Fed governor Kevin Warsh getting the nod. He is considered a hawkish pick who would likely raise rates. This would seem to run counter to the thinking of Grant and Gundlach. Warsh has been critical of the Federal Reserve for continuing to pursue extraordinary quantitative easing after rescuing (his word, not mine) the economy in the wake of the 2008 crash. But he would likely pursue a policy loosening bank regulations, something that would appeal to Trump.

Of course, all of this is just speculation. Nobody knows who Trump will pick except Trump. In fact, at this point, Trump may not even know.

One thing we can be certain of – no matter who heads up the Fed, it will continue to intervene in the economy, it will continue to micromanage the financial system, and it will continue to print money out of thin air to the advantage of the political class.

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