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Prospects: Trump’s Fed
- In any administration, there are surprises on appointments. Trump administration has already surprised us and may do so regarding their choices for the Fed.
- Appointing the regulatory vice-chair seems to be the first priority, given the importance to the White House and Congress of reforming regulation and even dismantling Dodd-Frank. One of the other two vacancies could even be filled by a hard money advocate.
- One of three appointed could end up being chairman next year, assuming Yellen stays on as a Governor. Yellen is more likely to step down if not reappointed to the Chair. In that case, Trump can appoint a new Chair. Given his preference for advisors who have been successful in business, his choice may be someone less academically oriented that the two previous Fed chairs.
- Like Nixon did with Burns and Bush did with Bernanke, Trump might want to take the potential chair out for a “test drive,” and appoint him to a position at the White House so they can get comfortable with one another.
- What worries the markets is that the next Fed chair might become more tolerant of inflation and that we discover we have a Burns rather than a Volcker.