Donald Trump is America’s first reality-television president, and he very much likes to run his appointment process for top official positions a lot like an episode of “The Apprentice.”
That helps explain why, every time Trump appears to have a shoo-in favourite to replace Janet Yellen at the helm of the Federal Reserve, he or his staffers insert some (likely faux) mystery into the mix.
The latest twist came after The Wall Street Journal reported Kevin Warsh, a former Morgan Stanley banker and Fed governor whom Business Insider has long flagged as a likely favourite for the post, had been interviewed by the president and Treasury Secretary Steven Mnuchin. This appeared to confirm Warsh was indeed at the top of the list of five or six names being floated around town.
However, almost immediately, Bloomberg cited an anonymous US official, almost surely from the White House, saying that the race for the Fed chairmanship was “very much open” and that Trump had met with other, unnamed contenders.
It’s not the first time the administration has tried to insert feigned uncertainty into a process that looks well under way.
Until recently, Gary Cohn, head of the National Economic Council and former president of Goldman Sachs, appeared headed for the Fed leadership post, despite his lack of experience in monetary theory and interest rate policy.
Then came Charlottesville and the terrorist attack and the president’s noncondemnation of neo-Nazis. When Cohn voiced meek, indirect disapproval of the president’s stance two weeks later, he suddenly fell out of favour with Trump, who has shown he values his own brand of loyalty over most other attributes.
There are several factors that should count against a Warsh nomination, including acute policy misjudgments made during the Fed’s response to the financial crisis and Great Recession of 2007-2009, when Warsh was a member of the Fed’s board.
Neil Dutta, head of US economics at the research firm RenaissanceMacro, had this to say about the possible appointment of Warsh — a lawyer by training and a banker by profession — in a note to clients:
“A client asked me ‘Can you tell me your thoughts on Kevin Warsh as the next Fed Chair? The likelihood as well as what type of chairperson they would be and how would the market react?'”
His response confirms my own analysis.
“Not positive,” he wrote. “Yes, Kevin Warsh was a governor during the financial crisis. But, the way he has gone after the Fed since he has left probably has not endeared him to the people there.
“So, my primary concern is whether the organisation would even respect him,” Dutta said. “Normally, the board’s staff assumes the chair knows the ins and outs of monetary economics at least as well as they do. Warsh would not be afforded that assumption. That is a big problem.”
Warsh was consistently on the wrong side of the policy debate, Dutta adds.
He was “calling for a sharp upturn in inflation when none arrived,” Dutta wrote. “He was originally sold as a student of the financial markets in 2006 but was grumbling about aggressive monetary action while the credit markets froze up.”
As for his chances at clinching the post, Trump appears to be doing a good job of keeping the reality-TV-inspired suspense alive.
“Trump met with Warsh,” Dutta said. “Fine. Should we draw a big line to an actual appointment? I am quite sceptical.”
Not me. Stay tuned.
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