To say that the race for the Federal Reserve chairmanship is wide open would be an understatement. Among the many taboos President Trump broke during his campaign was to repeatedly attack incumbent Janet Yellen for keeping interest rates artificially low and thereby mask the American carnage rampant under President Obama. However, as an incumbent himself now, Trump has come around to the idea of a Fed chair who keeps rates low enough to make Trump’s economic growth pipe dreams slightly more remotely possible. Then there’s Trump’s top economic adviser, Gary Cohn. His protestations to the contrary aside, reports are that the former Goldman president is looking for an exit from the sinking ship that is the Trump White House.
Keefe Bruyette & Woods is handicapping the race, and sees five favorites at the moment. In addition to Yellen and Cohn, the investment bank thinks Trump might go with Fed alum Kevin Warsh or Stanford professor John Taylor. Or maybe Neel Kashkari.
“Neel Kashkari!” you say. Yes, Neel Kashkari, whose fiscal policy experience extends back to—last February, when he became both president of the Federal Reserve Bank of Minneapolis and Dealbreaker’s favorite regional Fed chief.
“But,” you continue, “it can’t be Kashkari! He ran the hated bailout! And he likes Dodd-Frank! And wants to break up the big banks! And he’s been mean to Gary Cohn! He’s basically a younger, hairless, Kashmiri Bernie Sanders!”
All true. But he’s also got a few qualities that President Trump may find appealing. First, he’s a Republican. A California Republican, to be sure, but a Republican all the same. Second, he does want to pare down some banking regulations, just not for the big banks Trump likes to kick (another of Neel’s hobbies!) and hire from. Speaking of which, he’s a Goldman alum and formerly worked at PIMCO, which means he’s used to dealing with unstable bosses. Like the president, he loves Twitter and speaking out of turn. He’s an outsider—a non-economist doing an economist’s job. Perhaps most importantly, he’s more likely than even Yellen herself to keep rates down and Trumponomics from blowing up.
Mr. Kashkari’s dovishness may indeed make him attractive to the Trump administration, especially if its policies push up deficits that would be easier to deal with by way of Fed-engineered low rates….
Mr. Kashkari is also relatively young and ambitious–he ran for governor as a Republican in California and once led a key Treasury bailout program–and he is an able public speaker. That could appeal to the president.