But those two top contenders combine for lower than 50 percent odds in our expert survey — meaning that our panelists thought there was a better-than-even chance that the appointment will be one of many contenders with individually modest but collectively high chances of rising to the top of the president’s list.
Compared with PredictIt, an online marketplace based on news events, our experts saw slightly lower odds for either of them. On Thursday afternoon, trading on PredictIt implied 30 percent odds for Ms. Yellen and 28 percent for Mr. Warsh.
Using our expert survey — and comments from some of the participants in it — here’s a guide to President Trump’s options as he makes perhaps the single most consequential economic decision of his first year in office.
Yellen reappointment: continuity and bipartisanship
There’s a tradition of reappointing Fed chairmen who were originally appointed by a member of the opposite party. President Obama did so with Ben Bernanke; Bill Clinton with Alan Greenspan; and Ronald Reagan with Paul Volcker.
That tradition has helped keep the Fed, with its vast power over the economy and financial system, insulated a bit from politics, but President Trump has no obligation to follow it.
The case for renominating Ms. Yellen is straightforward.
She has presided over four years of steady economic expansion and rising financial markets. She moved cautiously toward raising interest rates even though the economy seemed to be approaching full employment. By contrast, some more conservative contenders for the job have indicated they want to raise rates more quickly, which could endanger the economy as President Trump approaches midterm elections in 2018 and a potential re-election battle in 2020.
After criticizing her during his campaign, President Trump has had some kind words for her, saying in July that he liked her and that “she’s done a good job.”
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Moreover, as President Trump dabbles in making deals with Democrats, reappointing Ms. Yellen could serve as an expression of good faith to Democratic senators. As administration officials focus on tax legislation and other priorities on Capitol Hill, it might be helpful to them to nominate someone who might sail through confirmation, rather than demand a bruising, time-consuming battle.
“She’s a known quantity, and there is less risk of disrupting the financial markets if the president renominates Dr. Yellen,” said Brian Gardner, managing director of Washington Research at Keefe, Bruyette Woods, and one of the panelists. “Although President Trump is unorthodox in many ways, every president wants calm financial markets.”
The case against Ms. Yellen is similarly straightforward: She is a liberal economist in a government dominated by conservatives. She is a cerebral academic serving during the presidency of a bombastic businessman. And she is a staunch defender of the work the Fed and other bank regulators have done to try to limit risk in the financial system — including in a high-profile speech last month — amid an administration focused on deregulation.
Kevin Warsh: well connected, but with baggage
Our experts’ consensus was that Mr. Warsh has slightly better odds than Ms. Yellen. He was a Fed governor from 2006 to 2011, and was a member of Mr. Bernanke’s inner circle in shaping the Fed’s extraordinary (and often extraordinarily unpopular) actions to battle the global financial crisis.
He is well connected in conservative political circles and is now a distinguished visiting fellow at the Hoover Institution at Stanford. Before joining the Fed, where he was the youngest governor in the institution’s history, he worked in the George W. Bush White House and at Morgan Stanley. He has a law degree, but no advanced degree in economics.
Mr. Warsh has been a skeptic of the Fed’s efforts to boost the economy through quantitative easing and has advocated raising interest rates more quickly. He also has a regulatory philosophy more in line with the administration’s.
The Race to Be the Next Fed Chairman Appears to Be Wide Open
Experts surveyed by The Times believe that Kevin Warsh and Janet Yellen stand the best shot at being appointed to lead the central bank, but combine for less than a 50 percent chance.
Another factor that might weigh in Mr. Warsh’s favor with the president? Mr. Warsh’s father-in-law is Ronald Lauder, of the Estée Lauder cosmetics fortune, a major Republican donor with longstanding ties to Mr. Trump.
If Mr. Warsh is nominated, expect significant blowback during the confirmation process from Democrats, who are likely to accuse the 47-year-old Mr. Warsh of being underqualified, of being responsible for the 2008 bank bailouts and inclined to regulate banks too lightly now, and of being too overtly political for the traditionally nonpartisan Fed chairmanship.
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Whatever happened to Gary Cohn?
Not long ago, Gary Cohn, the head of the White House National Economic Council, looked like the leading candidate to be the next Fed chairman. In late July, his odds were 46 percent on PredictIt. But now our panel puts those odds at 12 percent, and PredictIt’s odds were about the same.
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A former No. 2 at Goldman Sachs, Mr. Cohn has been reported to have swung out of favor with Mr. Trump after criticizing his response to racially motivated violence in Charlottesville, Va. But there were some reasons to be skeptical of Mr. Cohn’s appointment to the Fed chairmanship even before that.
Mr. Cohn has a hard-charging style that would be an unusual fit for an agency that is run more like an academic department. The last businessman to become Fed chairman, G. William Miller, was appointed by President Jimmy Carter and lasted only 18 months in the job.
And given his résumé, Mr. Cohn’s nomination would surely set off a heated confirmation battle. Democrats would be eager to criticize the administration for naming a recent top executive at Goldman Sachs to be the nation’s most powerful financial regulator. Some populist Republicans might join them.
Still, given the way people move in and out of Mr. Trump’s favor, and his preference for appointees with business experience, a Cohn appointment can’t be ruled out.
The other contenders
The expert consensus is that there is about a one-in-three chance collectively for the other possible nominees, even as each of them individually is viewed as having single-digit odds. Foremost among them are several of the names we would probably be hearing about if a conventional Republican president were in the White House.
John B. Taylor is a respected economist at Stanford who worked in the George W. Bush administration and has been an influential voice among congressional Republicans who want to see the Fed bound by stricter rules governing its actions.
Glenn Hubbard was a top economic adviser to Mr. Bush who is dean of Columbia Business School.
Larry Lindsey was another top adviser to Mr. Bush and a former Fed governor with an economics doctorate from Harvard.
Our panel’s consensus odds for the three were 8, 7 and 6 percent, respectively. Their doctorates and affiliations with top universities may actually be downsides in an administration that has shown disdain for academic expertise.
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Another intriguing possibility is Jerome Powell, known as Jay, a current Fed governor who served in the George H.W. Bush Treasury Department and was a partner at the Carlyle Group, the private equity firm. If Mr. Trump wanted a nominee who would probably maintain continuity with current Fed policy but was more conservative and business-minded than Ms. Yellen, Mr. Powell would be a below-the-radar option. The panel rates his odds of ending up in the job at 5 percent.
A range of other names has emerged in various reports, including the F.D.I.C. vice chairman Thomas Hoenig and John Allison, the former chief executive of BBT bank, but our panel assigns them only long-shot odds.
The surprise factor
Mr. Trump loves a surprise. In his search for a secretary of state, for example, he considered numerous prominent options before going with Exxon’s chief executive, Rex Tillerson, a bit of an out-of-left-field choice.
As he focuses on the choice for Fed chief, a similar pattern could reappear, and a less conventional choice could emerge. That’s why the consensus of our panel is that there’s a 10 percent chance the nominee is not on this list at all.
Then again, in another appointment that has some similarities to the Fed chairmanship, the selection of a Supreme Court nominee, Mr. Trump went with a respected conservative jurist in Neil Gorsuch.
As Mr. Trump starts focusing on the Fed chief decision in the months ahead, that may be the biggest decision of them all: whether to look at conventional qualifications, or go with a surprise. Either way, with Ms. Yellen’s term coming to a close and a crowded calendar of Senate business that could stand in the way of a confirmation vote, the clock is ticking.
ABOUT OUR PANEL: The odds listed here are based on a survey of 11 savvy observers of the Fed and economic policy making who were asked to offer a probability on each of the potential nominees listed. Their probabilities were to add to 100 percent, including the odds on “rest of field,” or another nominee emerging. Those odds were then averaged to create a consensus probability of each selection.
The participants were: Shehriyar Antia of Macro Insight Group; Tony Fratto of Hamilton Place Strategies; Brian Gardner of Keefe, Bruyette Woods; Krishna Guha of Evercore I.S.I.; Roberto Perli of Cornerstone Macro; Douglas Rediker of International Capital Strategies; Michael Strain of the American Enterprise Institute; Phillip Swagel of the University of Maryland; Diane Swonk of DS Economics; Eric Winograd of AllianceBernstein; and Mark Zandi of Moody’s Analytics.
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Article source: https://www.nytimes.com/2017/09/22/upshot/who-will-be-trumps-pick-to-lead-the-fed-we-asked-experts-to-rate-the-odds.html?partner=rss&emc=rss
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