Yellen's upcoming speech could mark the 'end of an era'

  • Fed Chair Janet Yellen is speaking at the Jackson Hole Symposium on Friday, possibly for her ast time as head of the US central bank.
  • Gary Cohn, reportedly the top candidate to replace her, could bring a “very different atmosphere” to the Fed.
  • Economists aren’t expecting much news from Yellen’s speech on Friday.

Janet Yellen could be on her way out as chair of the Federal Reserve.

On Friday, she’ll deliver a speech on financial stability at the Fed’s annual economic symposium in Jackson Hole, Wyoming. It could be her last, following months of speculation that President Donald Trump would nominate a different candidate when her four-year term ends in February.

And Yellen’s successor could have a very different approach to the job. Yellen’s Jackson Hole showing could be the last one, for now, under a Fed chair that takes a technocratic approach to monetary policy, according to Luke Bartholomew, an investment strategist at Aberdeen Standard Investments.

“There could be an end-of-an-era feel to Jackson Hole this year,” Bartholomew said.

The Fed chair could be replaced by someone who’s “probably not the sort of academic economist that’s been leading it through the Bernanke/Yellen period,” he told Business Insider. There’s “a broader feeling that under the Trump administration, the technocratic approach of the Fed is increasingly out of favour.”

The ‘archetype of Wall Street’

Yellen, 71, was a career economist and academic before President Barack Obama nominated her to replace Ben Bernanke in 2014.

Trump told The Wall Street Journal last month that Gary Cohn, Yellen and “two or three” other candidates were in the running for the job. One of those other individuals could be Kevin Warsh, a former Fed governor who is now a fellow at the Hoover Institution.

But Cohn, the National Economic Council director and Trump’s top economic advisor, is reportedly the top contender.

He’s the “archetype of Wall Street, given his job at Goldman in the past,” Bartholomew said. “He certainly brings financial acumen to the job. I’m not sure that’s what the job of Fed chairman is, but he’s a fine candidate.”

Walsh brings some years of Fed experience to the table. But he has worked for seven years in investment banking, at Morgan Stanley, and isn’t an academic policy maker like Yellen or Bernanke.

That’s not the only red flag that Yellen’s exit would raise. On one extreme, Yale School of Management’s Jeffrey Sonnenfeld thinks markets would crash if Cohn leaves the White House for the Fed. Stocks dipped last week as rumours spread that he was leaving the administration following Trump’s response to the Charlottesville protests.

“I don’t want to be an alarmist, but there is a lot of faith that he is going to help carry through the tax reform that people are looking for,” Sonnenfeld told CNBC last week.

‘My advice to Chair Yellen is to decline’

Several strategists have said that the administration’s economic agenda may be stifled without Cohn.

But some experts also find a second term for Yellen problematic.

Narayana Kocherlakota, the former president of the Minneapolis Fed, said last week amid the Charlottesville outcry that she should decline any offer from Trump.

“I am lucky enough to know Janet Yellen well — and I know that her vision for America is highly distinct from that of Trump’s,” he tweeted. “… my advice to Chair Yellen is to decline any such offer from Trump.”

In the next few years, Yellen — or whoever succeeds her — will continue dealing with the low-interest-rate world that the financial crisis ushered in, and what the right level of inflation to target should be, Bartholomew said.

Her actual speech on Friday probably won’t contain much news or insight into Fed plans, according to UBS economists. “We expect the Chair’s speech to keep to well-trod financial stability topics — some excesses may exist, but the system is safe — and eschew discussion of potential near-term policy actions,” said Seth Carpenter, the chief US economist, in a note Tuesday.

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