Is Kevin Warsh waiting in the wings in case Fed Chairman Jerome Powell, for whatever reason, has to leave his top post at the central bank?
It certainly looks that way to some.
if Kevin Warsh replaces Jay Powell as Fed Chair there are 2 possible outcomes:
(1) A Fed Chair significantly more hawkish than Powell
(2) A Fed Chair who discards his long-stated views on monetary policy to advance the political interests of President Trump https://t.co/5IOT5HLQF1
— Sam Bell (@sam_a_bell) December 22, 2018
The speculation started this week after Warsh co-wrote an op-ed in the Wall Street Journal with hedge-fund luminary Stanley Druckenmiller arguing that the Fed should not hike interest rates, a stance championed by President Donald Trump. The Wall Street Journal’s editorial board also joined the chorus.
Analysts said Warsh was not previously known for being a dove.
“It was surprising Warsh came out with a piece arguing against rate hikes even though most of his commentaries have all been more hawkish,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of a book about the Fed’s independence.
Warsh was interviewed by Trump for the top Fed job in 2017. The president ultimately selected Powell.
Efforts to contact Warsh for comment were not immediately answered.
Speculation about Powell’s future has been ignited by a report that Trump is angry that the Fed did raise interest rates this week. Trump has reportedly talked about firing Powell, a move seen likely to backfire.
Trump’s best way to influence the direction of the Fed is by appointing more doves to the board of governors. All four of Trump’s picks for the Fed board so far, including Powell, voted in favor of the December rate increase.
It’s not ideal. Would prefer that Powell & the Fed recognize the policy error they are making & back off. Maybe adding Larry Lindsey or Kevin Warsh to the FOMC would be a better way to go. Powell is a good guy. Just lacks experience. Could use some help.
— David Hunter (@DaveHcontrarian) December 22, 2018
There are two remaining vacancies on the Fed’s seven-member board of governors. Trump had nominated former Fed staffer Nellie Liang and Carnegie Mellon economist Marvin Goodfriend to fill those spots, but the Senate has not acted on them. All nominations that are pending when the Senate session ends will be returned to the president unless the Senate waives the rule. If the president still desires Senate consideration, he must submit a new nomination.
Spindel said it would be difficult for Trump to get doves through the Republican-controlled Senate. The Senate GOP has traditionally been more ideologically hawkish, “so it’s quite tricky,” he said.