How Will a New Fed Handle the Next Crisis?

John Mauldin |


Janet Yellen’s current turn at the chair expires in February.

Who will be running the Fed next year, and will it matter? How will new leadership change anything?

Trump could renominate her but hasn’t yet announced a decision or even given a hint.

This is speculation, but President Trump had some kind words for Yellen in a recent Wall Street Journal interview.

Anonymous sources quoted in the media say Trump economic advisor and former Goldman Sachs (GS) executive Gary Cohn is also in the running. Other names come up, but those two are leading for now.

It Will Be Trump’s Fed

I am not sure what to make of President Trump’s generous remarks, especially after his less than laudatory remarks about the Yellen Fed during his campaign. Maybe wiser heads got to him and pointed out that she is going to be Fed chair through February.

We know President Trump admires successful business leaders. That might give Cohn an edge, since he was COO at Goldman Sachs. But then again, appointing Goldman Sachs alum to the head of the Fed really doesn’t square with his campaign speeches.

It wouldn’t surprise me to see a “dark horse” emerge as the nominee.

Trump will get to fill at least six of the seven potential open seats by this time next year. No other president has been able to put his stamp this firmly on the Fed since Woodrow Wilson appointed the original Federal Reserve Board of Governors in 1913.



Trump’s nominees will control the Fed. Good, bad, or indifferent, it will be the Trump Fed.

But Will It Matter After All?

Businesspeople think differently from economists. They pay attention to market signals rather than political criteria.

The Fed has over a thousand PhD economists on staff, and it's not at all clear that the combined weight of their expertise leads to better policy decision.

The bottom line on Yellen vs. Cohn: Both are tolerable. Markets might like Yellen better simply because she is at least a known quantity. Cohn might bring a different attitude and make personnel changes, but his impact wouldn’t show up in monetary policy for some time.

But there are more than a few people, including myself, who would prefer to see someone else appointed.

However, when I discussed Trump’s next two probable nominees to Randal Quarles, a Treasury Department official in the George W. Bush administration, and Marvin Goodfriend, a former Fed official who is now a professor of economics at Carnegie Mellon University) there was general agreement with me that those two names suggested there would not be a serious change in direction at the Federal Reserve Board next year.

And no matter who gets appointed and what they do, I doubt the choice would matter very much. The Fed’s policy course under Yellen will be hard for Cohn or anyone else to change.

So when the next crisis hits, you can expect more QE and perhaps even negative rates.

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Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

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