The Fed’s ‘game of thrones’ is about to reach its season finale

Posted on November 2, 2017

The torch is about to be handed out to the next Chairman of the Federal Reserve, as Janet Yellen’s current term is set to end on February 2018.


This last decade hasn’t been a walk-in-the-park for any of the Fed’s Heads, as the aftermath of the 2008 financial crisis has left the institution with a football-field-sized balance sheet of $4.5 trillion.This is mostly constituted by bonds and other financial instruments bought to stabilize the credit markets and the economy.


Nevertheless, the markets are closely following the race towards the ‘throne’ as the upcoming season, that includes the downsizing of this tremendously large balance sheet will surely be a challenging one.


Moments before President Donald Trump officially informed that five candidates were already shortlisted for the position, a White House official speaking in anonymity informed that the list of candidates has been already reduced to five and you can bet President Trump is hesitant on who to choose, as was clearly evidenced by his opinion shift towards Mrs. Yellen, who was roughly criticized by Trump during his campaign with remarks such as the infamous “she should be ashamed of herself” to now praise-full phrases like“she has done a good job”.


Perhaps, someone informed him that it hasn’t been as easy as it looks to maintain low inflation and the lowest interest rates ever after the country’s economic landscape almost fell apart.


This top-five list includes Jerome Powell, an investment banker and former Treasury Department official for the latest Bush administration; along with Kevin Warsh, a seasoned former Fed Governor who was closely involved in the stabilization procedures during the crisis, also serving Bush.


Closing the list, we have John Taylor, a Stanford top-of-the-line economist with vast experience advising lawmakers and White House officials; and Gary Cohn, Trump’s economic right-hand and a former Goldman Sachs’ executive who has helped President Trump in preparing his highly expected new tax bill.


A poll conducted by Reuters that included 40 economists has shown Powell as the to-be-appointed one. Nevertheless, the overall media has shown that the actual ‘throne holder’ remains uncertain for most market players.


Even though Yellen initially sounded like a wild guess, the President’s recent thoughtful comments on her can be a signal of a potential renovation of her appointment. In this regard, that old saying “better the devil you know than the devil you don’t” is apparently serving as Trump’s rule of thumb for the picking. The decision will be made in the next two weeks, so we will quickly find out whether these cheerful comments were a preparation for it or just plain old politic.


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