As Fed chief, Kevin Warsh would ‘break with the old playbook’


The Yellen Fed continued for a time the practices under previous Chairman Ben Bernanke — accommodative policy that included low interest rates and an aggressive bond-buying scheme known as quantitative easing that helped keep banks liquid and the stock market humming.

However, she also is bringing about a new era in which interest rates are climbing slowly and QE, which sent the Fed’s balance sheet to $4.5 trillion, will be unwound starting in October.

Warsh would be charged with piloting policy forward, a task that he would be prepared for as a former Fed official acquainted with the nuances and granularity of central bank activity.

“Kevin Warsh is an experienced investment and central banker who has managed to ascend to the favorite position in the Fed Chair sweepstakes without being a PhD economist or franchise financier,” Paul Brodsky, at Macro Allocation, said in a note. “His abundant implied political skill and lack of branding, along with his relative youth (47), make him the likely choice.”

Warsh is currently a distinguished visiting fellow at Stanford University’s Hoover Institution. He could not be reached for comment.

He has emerged from a crowded field of contenders that also includes Stanford economist John Taylor, current Fed Governor Jerome “Jay” Powell and, perhaps, still chief White House economic advisor Gary Cohn, whose near-lock on the position evaporated after he publicly criticized Trump’s reaction to the August racial violence in Charlottesville, Virginia. (Some think Cohn could ascend back up the ladder should tax reform pass.)

Brodsky sees Warsh as the type who can take the Fed from its current focus on interest rates, balance sheet reduction and bank regulation to a broader role as an agent for global growth.

“We think the main job of the next Fed Chair will be to bridge the past and the future,” said Brodsky, who added that Warsh probably would have to assure Trump that, despite expectations that he might be perceived as pushing for more aggressive policy, he in fact would be mindful of promoting growth.

“We suspect the key to getting the post would be indicating to Mr. Trump that restrictive policies may not be in the economy’s best interest,” he said. “Warsh is intelligent, ambitious, flexible, articulate, diplomatic, and very aware of the economic implications of technological innovation, the limitations of old ways in dealing with it, and the inevitability of change.”

WATCH: Yellen says she only met with Trump once so far.

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