From Citi’s Will Lee following Tarullo’s resignation from the Fed on Friday. As Matt already wrote, Tarullo’s departure “adds to the two open spots on the Federal Reserve Board, which in principle is supposed to have seven members.”
And as Lee suggests:
With the prospective retirement of Chair Yellen and Vice-Chair Fischer in 2018, the imminent retirement of Governor Tarullo on April 5, and the existing two Board vacancies, President Trump [can] deliver to Congress a “rules-friendly” Federal Reserve Board. He can staff the Board with a majority of members (five out of seven) who would be favorably inclined toward operating monetary policy in a manner consistent with the House legislation.
You can make your own mind up about the risks of Trump “stacking the board”, but here’s Lee again on the potential makeup of that stack:
We anticipate Governor Tarullo’s successor will be appointed to the now-vacant post of Vice-Chair of Supervision, a position mandated by the Dodd-Frank legislation. Notwithstanding two other unfilled Board positions, filling the position of Vice-Chair of Supervision likely will be given higher priority because it allows the Trump Administration to further its mandate to deregulate the financial sector…
A few names have surfaced as potential candidates for Fed Vice-Chair for Supervision, but there is no clear winner yet:
- David Nason, a former member of the former Treasury Secretary Paulson’s 2008 TARP team was engaged in bank rescue efforts, and has been cited in the press as a leading candidate for vice-chair. He won high praise from Paulson for his helpful role in designing and advocating for TARP during the 2008 banking crisis.
- John Allison, the former head of the regional bank, BB&T Corp, former head of the libertarian think tank, the Cato Institute, and gold standard advocate.
- Tom Hoenig, current FDIC Vice-chair and former Kansas City Fed President has been mentioned as a contender, but his position on strengthening terms of bank “living wills” and for not easing capital requirements may put him at odds with Cohn.
- Paul Atkins, former SEC commissioner has been mentioned, but he has said he would prefer to remain at his consulting firm.
…
The short list of potential Chairs and Board members likely include those mentioned above for Vice-Chair of supervision and the following mainstream Republican economists:
John Taylor of Stanford and author of the Taylor Rule has recently said “the Federal Reserve is a little behind the curve” in raising rates. Yet he has never advocated an actual policy change that would raise rates rapidly to levels prescribed by the simple Taylor Rule.
Kevin Warsh of Stanford, and a former M&A banker at Morgan Stanley, has focused on both cyclical economic and financial developments as determinants of monetary policy, which he has criticized as being too short-term focused and driven too much by “ride the wind” policies.
Glen Hubbard, Dean of Columbia Business School, advocates a “wait and see” approach to raising rates to assess the impact of whatever fiscal measures may come from the Trump Administration. He has noted that different policy reactions are needed for fiscal policies that raise aggregate demand versus policy changes that affect the supply side and productivity. He is agnostic about which will prevail.
Related link:
Tarullo says Trump’s Wall St principles ‘good starting point’; – FT
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