President Trump is increasingly unlikely to nominate Fed Chair Janet Yellen next year for a second term, four people close to the process said.
National Economic Council Director Gary Cohn is now the leading candidate to succeed Yellen as the world’s most important central banker, these people said. Yellen begins two days of congressional testimony on Wednesday, and her own future in the job may come up in questioning.
If Trump taps Cohn for the Fed, it could enrage economic nationalists in the White House and some staunchly conservative Republicans on Capitol Hill who don’t like the former Goldman Sachs president’s background as a Democrat who generally favors free trade.
And it would spur a backlash from progressive lawmakers who have blasted the president for picking multiple Goldman alums to run economic policy.
But sources on Capitol Hill and inside the White House and the Treasury Department said that, at least as of now, if Cohn decides he wants the job, he is likely to get it.
“It’s Gary’s if he wants it, and I think he wants it,” one Republican close to the selection process said. A senior congressional GOP aide said that while a few Senate Republicans might express reservations about Cohn, he would probably receive widespread support.
“He would be easily confirmed," this person said. "Most of our conservative members like him."
Cohn would be the first Fed chair in four decades who isn’t an economist, the last being G. William Miller, who held the job for a little over a year under President Jimmy Carter. Another front-runner for the top job at the central bank, former Fed governor Kevin Warsh, also has industry experience and, though he is an academic, does not hold a Ph.D. in economics.
“Speaking as a non-economist, it’d be kind of refreshing,” said Cam Fine, president of the Independent Community Bankers of America.
Because Cohn is not an academic or monetary policy specialist, he has expressed some misgivings about the cloistered nature of the Fed chair job and the regular trips to Capitol Hill to field questions from lawmakers, people close to the matter said.
Cohn is also mentioned as a potential future White House chief of staff and may decide he would prefer that job to leading the central bank.
Asked recently about being Fed chair, Cohn demurred. “No, I have a great job right now,” he told CNBC. “Serving the president has been a dream come true.”
But leading the Fed, which is at the center of both the global economy and Wall Street regulation, would probably be a job Cohn could not refuse, people close to the NEC director said.
“The chair of the Federal Reserve has more influence over the economy, in the short run, than any other person in government,” said Aaron Klein, a fellow at the Brookings Institution.
The next Fed chair will take the helm at a pivotal moment for the central bank, which has been cautiously raising rates as part of its effort to end nearly a decade of extraordinary support for the economy.
Under Yellen, the Fed has also been rolling out plans for how it will begin shedding the trillions of dollars in Treasury bills and mortgage-backed securities that it purchased in the wake of the financial crisis. The agency expects to put that plan in motion later this year and is giving increasingly specific details ahead of time so as not to roil financial markets.
A new Fed chair might have different ideas on both fronts, with huge implications for markets and the economy.
If the Fed gets it wrong and bumps up rates and shrinks its balance sheet too fast, it could tip the economy into a recession that would plague Trump and congressional Republicans in 2018 and 2020.
If it moves too slowly, it could risk getting behind on inflation and be forced into an economy-crushing series of rapid rate hikes to fight rising prices.
The risks involved in the Fed job now, some analysts say, make it somewhat less appealing than when the central bank was dumping money into the economy and driving the stock market to record highs.
The top central banker would also be a key player in any rollback of financial rules imposed since the 2008 crisis.
Trump has not yet focused on filling the Fed chair job and probably won’t until later this year; Yellen’s term ends at the beginning of February. But the president has expressed a preference for lower interest rates, which is more in line with keeping Yellen than picking a conservative economist who might be more hawkish.
Cohn does not have a track record on monetary policy. But he is viewed as closer to Yellen’s preference for gradual rate hikes. That perception could spur opposition to a Cohn nomination from more hawkish Republican senators, along with a perception that he’s too close with the banking industry.
Earlier this year, some Republican senators quietly squelched the rumored pick for the Fed’s top regulatory job because of his ties to the bank bailouts during the crisis. Goldman was a beneficiary of that government money during Cohn’s tenure as president and COO.
Despite some speculation that Trump could decide to nominate Yellen, whom he harshly criticized during the 2016 campaign, people close to the process say the chances he would do so are now close to zero.
Republicans on Capitol Hill, eager to install a new Fed chair, would likely balk at such a move and could block her nomination.
For his part, Cohn has attracted fans on both sides of the aisle, including at the Senate Banking Committee.
Sen. Jon Tester (D-Mont.) said Tuesday that compared with others in the administration, "he approaches things with a little more common sense — more realism, less idealism."
Sen. David Perdue (R-Ga.) said, "I have mixed emotions because I like what he's doing where he is, but he'd make a great Fed chairman, too."
The top Democrat on the Banking Committee, Sen. Sherrod Brown of Ohio, said Cohn has been accessible. Brown described his fellow Ohio native as an ally in attempts to revive the Export-Import Bank.
People close to Cohn say he would strongly consider the job if Trump offered it and if he felt he’d completed his work on tax reform. However, Cohn’s status as the leading candidate could change, particularly if efforts to reform the tax code falter. Cohn is leading that effort for the White House along with Treasury Secretary Steven Mnuchin.
Senior aides in Trump’s orbit often rise and fall in the president’s estimation. And Cohn’s nationalist rivals in the White House, led by senior adviser Steve Bannon, could try to sway the president against selecting the NEC director for the top Fed job.
But these aides could also decide that they would rather have Cohn out of the White House, where he regularly weighs in on trade and immigration policy, and at the central bank, where he would not play a major role on these issues, two people inside the White House said.
In addition to tax reform, Mnuchin and Cohn are in charge of the process of helping Trump decide what to do about the Fed chair job. So Cohn could theoretically wind up recommending himself.
If Cohn doesn't get the Fed job, four sources close to the president said the most likely pick would be Warsh, now at Stanford’s Hoover Institution.
Warsh served in the White House under President George W. Bush and as a Fed governor from 2006 until 2011, where he was liaison to Wall Street during the depths of the financial crisis.
Other names mentioned as possible candidates for the Fed job include Stanford’s John Taylor, Columbia Business School Dean Glenn Hubbard, current Fed governor Jerome Powell, U.S. Bancorp Executive Chairman Richard Davis, and former PNC Financial Services Group CEO Jim Rohr. But right now, Cohn and Warsh are clear front-runners.