Wednesday, December 26, 2018

Two Names Emerge as Potential Replacements for Fed Chairman Powell

Janet Yellen and John Williams
By Robert Wenzel

There is no indication that President Trump will fire Federal Reserve Board Chairman Jay Powell despite Trump's recent barrage of criticism aimed at Powell for recent Fed interest rate hikes.

Indeed, legal experts are divided on whether Trump can fire Powell. Most seem to agree, however, that he could remove Powell as chairman and leave Powell as simply a member of the Fed board. Thus giving Trump the opportunity to name another chairman.

There is a spot open on the board, or more accurately there are two stalled nominations, for which Trump could use one of the spots to nominate someomne new for the chairman's position if he chooses to remove Powell.

There has been talk amongst what can be described as second-tier, high-level, US government financial officials as to who might be potential candidates to replace Powell.

There has been nothing officially proposed or even brought to the attention of officials that would suggest replacements to the president, but it is this second-tier group that would have influence and provide advice to the top officials who would be making suggestions to the president.

Amongst this second-tier group, two names are emerging as potential Powell replacements, New York Federal Reserve Bank President John C. Williams and Minneapolis Federal Reserve Bank President Neel T. Kashkari.

Williams only became head of the New York Fed earlier this year. He was previously head of the San Francisco Fed.

According to those who are proposing his name, he has a few things going for him as a Powell replacement. Prior to becoming SF Fed president, he worked under Janet Yellen who held the post before moving to Washington D.C. to become Fed chair. He worked closely with Yellen in SF and, thus, has good pedigree and would in ways return the Fed to a Yellen-like style. In other words, with Williams, Trump could sneak Yellen-type thinking back into the Fed.

Williams has also been vocal about, and a strong advocate of, what he calls "average-inflation" management which means that he would not be as aggressive as Powell at hiking rates to battle any price inflation that emerges above the Fed two percent target rate. He would look at previous inflation, which has been below target, and average that with any new inflation that is above two percent and not get concerned until the average inflation ticks above the two percent target. Thus, he would be far from willing to hike rates even if price inflation ticked in the short-run above the target.

Finally, because Williams is at the respected and influential New York Fed, the thinking is that if it did come to replacing Powell, Williams, as the nominee, would act as a calming influence on markets. With the added plus that he has strong communication skills in the sense that he knows how to put things in a manner that tend not to rattle markets. He gets the "trader mentality" as one source explained it to me.

The other name that is appearing on the radar is that of Kashkari. He was described to me as a "dark horse dove" candidate. Kashkari is a dark horse candidate because he has nowhere near the creds that Williams has on Wall Street and within the international financial community. On the other hand, if Trump is looking for someone who might even cut rates, Kashkari would be the man. He is by far the most dovish person within Federal Reserve circles. But Kashkari, because he is such a dove when it comes to raising rates, would possibly face, on news of his nomination, markets that could be shaken. Also, the thinking is that Kashkari would, unlike Williams, face the potential of numerous Fed members who might buck his leadership direction. Trump's nominating Kashakari, one source in the Williams camp told me, would be similar to Trump announcing the simultaneous pullout of troops from Syria, Afghanistan, South Korea and NATO. You can't rule it out but it would be a very unconventional move on top of an unconventional move.

As things stand now, though, the efforts at the top, especially by Treasury Secretary Steven Mnuchin, are to attempt to talk Trump down from his current anger. There are reports that Mnuchin is trying to arrange a meeting between Trump and Powell, who hasn't met with Trump since becoming chairman, to smooth things out. But this is Trump, so you never know. The boys in the trenches are ready with names if Trump decides to make a move.

Of course, Richard Ebeling and Joe Salerno are the only two names that really make any sense. Either one of these two guys could create magic by ending monetary inflation and the business cycle within six months.

Robert Wenzel is Editor & Publisher of

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