President Trump Will Be Able to Recast the Fed by Filling Vacancies -- Update
21 February 2017 - 8:40AM
Dow Jones News
By Kate Davidson and Ryan Tracy
President Donald Trump will be able to recast the Federal
Reserve by filling three or more vacancies on its seven-member
board of governors, and is leaning toward candidates with banking
and financial world experience rather than academic economists.
After his campaign criticism of the central bank's
low-interest-rate policies, many observers speculated he would seek
more "hawkish" candidates who would favor higher borrowing costs.
But his choices may be driven less by these issues and more by
their practical experience, judging from his early picks for other
top economic policy posts in the administration -- drawn from
investment banking, private equity and business -- and the pool of
early contenders for the Fed jobs.
So far, his team is prioritizing the search for candidates to
fill the role of vice chairman for supervision and a seat for
someone with a community banking background, as required by law.
His team has interviewed several candidates, including financial
executives with experience in government, according to people
familiar with the matter.
David Nason, an executive at General Electric Co.'s financing
arm and former Treasury Department official during the 2008
financial crisis, emerged as a leading candidate in recent weeks to
be the vice chairman for supervision, though Mr. Trump's team has
also interviewed other candidates, the people said. The position
was created by the 2010 Dodd-Frank law, but the Obama
administration never named anyone to fill it.
Other potential candidates the administration has considered
include former BB&T Corp. Chief Executive John Allison, and
Rep. French Hill (R., Ark.), a former banker just re-elected to his
second House term, these people said. Mr. Hill said in a recent
radio interview he hasn't had any conversations with the Trump
administration.
A White House spokeswoman declined to comment.
Such choices would mark a departure from the trend of recent
decades, when most Fed officials were economists, many with
extensive experience in academia or the central bank. It could
usher in a return to the Fed's earliest years, when bankers,
lawyers and other businesspeople had a much larger presence.
Mr. Trump's views on monetary policy are unclear -- he both
praised and criticized the Fed's low-rate policies during the
campaign. He also promised to roughly double the pace of annual
economic growth to 4%, which would be harder if the central bank
boosts interest rates more aggressively to restrain inflation.
"There's no reason to think Trump would go for one of these
really predictable, hawkish academics who's schooled in balancing
inflation," said Sarah Binder, a political-science professor at
George Washington University who has studied the Fed's relationship
with Congress. "He seems to want people, as best we can tell, with
a background in finance or a background in business that brings
some sort of real world -- from Trump's perspective -- appreciation
for the good stuff that low rates can do," she said.
The seven-member Fed board has two vacancies and will have a
third in April when governor Daniel Tarullo steps down in
April.
Janet Yellen's term as Fed chairwoman expires in February 2018,
and Stanley Fischer's tenure as vice chairman will end in June
2018. In each case, Mr. Trump will have to decide whether to
nominate them for a second four-year term or name someone else.
The topic is of intense importance to the financial world, where
analysts and lobbyists have speculated feverishly. In their client
notes and conversations, the possible candidates for chairman
include former Fed governor Kevin Warsh, who once worked for Morgan
Stanley & Co. and now serves on a forum of business executives
advising Mr. Trump; former Fed governor Larry Lindsey; University
of Chicago professor John Cochrane; and Stanford University
economist John Taylor, who has worked closely with congressional
Republicans on legislation to limit the Fed's discretion in setting
interest rates. It isn't clear whether the Trump administration is
considering any of these people for the job.
Mr. Trump has so far relied primarily on business and financial
executives to help shape his economic policy, rather than
economists. He hasn't appointed anyone to the White House Council
of Economic Advisers, which is typically filled by academic
economists, and his top economic adviser, National Economic Council
Director Gary Cohn, was a top executive at Goldman Sachs Corp.
Mr. Trump said during the campaign he would probably want to
replace Ms. Yellen. But he could ask her to stay on -- the last
time a new president didn't nominate the Fed chairman to another
term was in the 1970s.
If Mr. Trump doesn't renominate Ms. Yellen and Mr. Fischer to
their current positions, they wouldn't have to leave the board. Ms.
Yellen's term as governor expires in January 2024, and she hasn't
ruled out staying in that seat beyond her term at the helm. Mr.
Fischer's term as governor expires in January 2020, and he hasn't
commented publicly on his future at the Fed.
The last time a Fed chairman stayed on the board after losing
the top job was during the Truman administration.
Write to Kate Davidson at kate.davidson@wsj.com and Ryan Tracy
at ryan.tracy@wsj.com
(END) Dow Jones Newswires
February 20, 2017 16:25 ET (21:25 GMT)
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