US Treasury Shortlists Candidates for Next Federal Reserve Chair

US Treasury Shortlists Candidates for Next Federal Reserve Chair

Following a rigorous series of interviews, the US Treasury Secretary has reduced the candidate pool for the next Federal Reserve Chair from 11 to 5 individuals. The nominee could be named as early as January, though not necessarily for the chair position. According to senior Treasury officials, the remaining shortlist includes two current Fed officials: Vice Chair for Supervision Bowman and Governor Waller. The list also features National Economic Council Director Hassett, former Fed Governor Warsh, and BlackRock's Chief Investment Officer of Fixed Income, Rick Rieder.

New Round of Interviews

The Treasury Department plans to conduct a new round of interviews with these five candidates in the coming weeks and months. These interviews will be led by the Treasury Secretary and include two senior Treasury officials and two senior White House officials. Due to the Treasury Secretary's focus on the World Bank/International Monetary Fund meetings in Washington next week, followed by an extended trip to Asia with the US President, the interview process is unlikely to conclude until after Thanksgiving. Subsequently, the Treasury Secretary intends to present a further refined list to the President, who will make the final decision. The eventual winner is likely to be nominated first as a Fed Governor and then subsequently nominated as Fed Chair.

Nomination Strategy

This is because outgoing Fed Chair Powell's term ends next May, but he would retain his governor seat for another two years. Former Fed Governor Kugler's seat, currently occupied by Milan, expires next January, allowing a new Fed Chair to be nominated to a full 14-year governor term. However, officials cautioned that this strategy is not finalized, and other possibilities remain.

Trump Administration's Approach

The Trump administration has adopted a more "open" process for the selection of the next Fed Chair compared to previous administrations, with candidates being consistently announced as the list grew and now shrinks. Meanwhile, the administration, led by Trump himself, has been highly critical of the Fed’s policies, repeatedly urging it to cut interest rates drastically. He has threatened to oust Powell and attempted to fire Fed Governor Cook on alleged mortgage fraud charges, which Cook has denied.

Federal Reserve Independence

The attempted firing of Cook has been blocked by a lower court, and the case is set to be heard by the Supreme Court in January. The attempt to remove Cook raised concerns about this administration’s commitment to Federal Reserve independence, making the appointment of a new chair crucial, and making it a highly watched decision.

Selection Criteria

For the first time, Treasury officials also provided insight into the Treasury Secretary’s views on the criteria for selecting a nominee for the position. The Treasury Secretary is reportedly looking for someone open to new ideas on the Fed's operation and monetary policy, with experience in economics, monetary policy, bank regulation, and management.

Treasury Secretary's Criticism of the Fed

The Treasury Secretary recently penned an op-ed sharply criticizing the Fed and calling for a review of the Fed’s policies, structure, and mission. His criticisms included that the Fed has grown too large and experienced "mission creep." This suggests he would favor a candidate willing to scale back the Fed and cut back on the use of some of its tools, particularly quantitative easing.

Potential Candidates

Officials said no candidate is currently in the lead, but they confirmed recent reports that Rieder made a strong impression on the Treasury Secretary. Rieder has been a prominent figure on Wall Street for many years, and his analyses of the fixed-income market and the Fed are widely read. He also manages a large division at BlackRock. Officials hinted that Rieder being the only one of the five candidates who has never worked at the Fed, while not determinative, could be a plus.