Why the next Federal Reserve Chair appointment may well be both the most consequential & the most badly compromised in advance ever. Intelligence, experience, and character: All in short supply among likely live possible picks…
Donald Trump once championed Jay Powell as the paragon of central banking. Now, with Powell out of favor and a slate of dubious potential successors on deck, the Senate’s role as gatekeeper would be vital, if there were a snowball’s chance in hell of there being enough sane Republicans for it to be able to actually, you know, do its job.
Of all the eight billion people in the world, eight years ago Donald Trump thought—strongly—that Jay Powell was the best person in the world to be Fed Chair. Hold on to that.
Today Donald Trump loathes Powell for, as best as I can see, doing his job. Trump has been applying pressure on him to imprudently and prematurely, given uncertainties and risks, reduce the policy interest rates the Fed controls. Trump has been “flooding the zone” with pressure along all axes, up to and including threatening to fire Powell for cause. What cause? The renovation of the Fed’s HQ has come in over budget, in substantial part because years ago Powell acceded to demands from Trump henchmen that the renovation utilize more marble and less concrete.
Now Donald Trump is about to nominate somebody else to be Fed Chair.
Looking at his candidates, the right thing for the U.S. Senate to do is to reject any of the likely candidates we now see. All of the candidates lack either the intelligence and analytical skills, the central-banking knowledge and experience, or the moral character to be a good candidate for the job. Appointments are made by the president with the advice and consent of the Senate. The Senate should—if it were to do its job—follow the lead of what its left-wing Democratic members will do when the nomination comes to the floor, which is to advise Donald Trump that they do not consent, and ask him to rethink. And given Donald Trump’s past inability, by his own lights, to choose a good Fed Chair, surely he should delegate the job of choosing one to somebody less inept at the task.
Robin Wigglesworth in the Financial Times cogently and concisely summarizes the same market and economist views that I am hearing:
Robin Wigglesworth: Rating & slating all the Fed chair candidates <https://www.ft.com/content/07e92a4b-f4ef-40b5-8172-eebc983f532f>: ‘Chris Waller…. The pretty obviously cynical jump from advocating for “more caution” on rate cuts in the autumn of 2024 to suddenly being the FOMC’s leading dove might have dinged his credibility, but Waller… is easily the favoured candidate of most investors…. And despite his overt keenness on the job, Waller would probably be welcomed by most of the Fed’s staffers as well….
Kevin Hassett… once mostly famous for co-writing the… “most spectacularly wrong investing book ever”… now primarily known as Trump’s premier economist cheerleader…. The increasing extremity of his Trump sycophancy has unnerved a lot of investors and analysts…. His modelling skills need work….
Kevin Warsh… briefly worked as an investment banker… served on the National Economic Council… George W Bush… nominated him for a Fed governorship in 2006 despite just being 35…. Investors and economists who Alphaville has spoken to are unimpressed… a lightweight, instinctive hawk who has desperately tried to reinvent himself as a dovish Trump devotee to win a job that on pure merit he probably shouldn’t be anywhere near. But he’s married to the daughter of Trump megadonor and fellow Greenland fan Ronald Lauder….
Steven Miran… might not be able to convince his FOMC colleagues to slash rates immediately, but his longer-term vision of a more
supineaccountable Fed is more than a little unnerving….Miki Bowman… has also been making noticeably dovish coos lately… [to] be in the mix. Or at least [she] is very keen to be in it… joined Waller in voting for an interest rate cut at the July FOMC meeting…
When I look at Bowman, I see someone whose experience is too thin to be a credible candidate. And I see a definite lack of moral character. Her blaming house-price inflation in the United States on demand from the flood of immigrants was a definite low point. Another low point was her, last month, joining Waller in dissenting from the Federal Open Market Committee consensus.
The conventional norm for the past two generations, at least, is that while Fed Governors can quarrel with Chair decisions about interest rates, in the end they vote with the Chair. This norm arises because the voting members of the FOMC consist of seven president-appointed-senate-confirmed officers of the United States plus five of the twelve regional central-bank presidents who have an ambiguous private-public status. Things might become politically fraught, should the deciding vote on what is a government decision of monetary policy come from a person of ambiguous status. Hence the seven governors almost always form a united voting block on the FOMC. Mark Olson broke from this norm back in 2005. Since then, IIRC, no governor had—until Miki Bowman, last September, dissented. That dissent was because she thought Jay Powell was making too-accommodative monetary policy. Now she (and Waller) dissent because they claim they think that Jay Powell is making too-restrictive monetary policy. That is just not credible.
Strong moral character is important here. FOMC members should remember that, according to those I have talked to, 1970s Fed Chair Arthur Burns’s late life was shadowed by his constant memory of how he had not had the strength to resist pressures from the Nixon administration during the Great Inflation of the 1970s. And he did not, as a result of succumbing, even get the revenues from an appointment as Justiciar for Wales.
My opinion of Hassett is reasonably well-known. I think he makes the trifecta here—current Trump sycophancy showing negative moral character, double-counting of retained earnings as both investments and payouts showing negative intelligence and modeling skills as well, and clearly insufficient central-banking knowledge and experience. Miran is largely in the same boat—although there are people who claim to me that his modeling and analytical skills are head-and-shoulders above Hassett’s.
Warsh at least has the central-banking knowledge and experience. But Wigglesworth’s channeling of “investors[’] and economists[’]” opinons as “unimpressed… a lightweight, instinctive hawk… who… on pure merit… probably shouldn’t be anywhere near” the job rings very true to everything I know. A network-nepotist promoted well beyond his Peter-Principle level by George W. Bush’s posse who is the son-in-law of Trump affiliate Ronald Lauder. And the lack of moral character shown by his “desperately tr[ying] to reinvent himself as a dovish Trump devotee to win a job” would, in a well-working world, lead him to get zero senate-confirmation votes.
And so we are down to Waller as the best of a rather scurvy lot.
Waller’s affinity presses me that what Wigglesworth characterizes as his “pretty obviously cynical jump from advocating for ‘more caution’ on rate cuts in the autumn of 2024 to suddenly being the FOMC’s leading dove…” is the price he has to pay to stay in the mix, and that on central-banking knowledge, central-banking experience, intelligence, analytical chops, and even moral character—as his current bending the knee to Trump is his only flaw, and it is a flaw shared by very many now—he play in a much better league than any of the others. Point. Several points, in fact. His affinity is not wrong.
But in a good world, on a sane planet, the senate would tell Trump: You have a demonstrated a stunning inability to pick a good Fed Chair even by your lights, let alone anyone else’s. Eight years ago you thought very strongly that Jay Powell was the best person in the world to be Fed Chair. Remember that. So delegate this task, that you did such a lousy job on last time. Let the members of the Senate Banking Committee hold an open-hearings process, and then pick a truly excellent meritocratic candidate for your approval.
However, we are not on a sane planet, are we?
I hope for Waller.
I do greatly fear.
