Summary:

• Kevin Warsh could become a successor of Janet Yellen as a new chair of the Federal Reserve
• Warsh has deeply criticized the FED’s QE program, if he became a new chairman, quantitative easing could be less likely to be used once again
• He opts for lowering the FED’s inflation target to a band between 1% and 2%, down from the current 2% objective

Janet Yellen’s term in office expires in February 2018, hence there are getting wider discussions who would be the next chair of the Federal Reserve. Even as Yellen could be renominated, odds for holding her for the next term are rather slim. Having said that, market’s attention has been paid to others, Kevin Warsh is among them, at least according to the latest revelations that the US President Donald Trump, US Treasury Secretary Mnuchin and Kevin Warsh met last week. Beside Warsh there are three more candidates including John Taylor (Stanford economist), Jerome Powell (current FED governor), Gary Cohn (chief White House economic advisor). Let’s us come forth with the most relevant information pertaining to him.

Education

According to the Federal Reserve website Warsh studied economics and statistics at Standford University and he went on to Harvard University where he focused his studies on the intersection between law, economics, and regulatory policy. He also completed coursework in market economics and debt capital markets at Harvard Business School and the Massachusetts Institute of Technology’s Sloan School of Management.

He isn’t a newbie in the Federal Reserve

In 1995 he began working in Morgan Stanley and also served as a financial advisor to several companies. Afterward, he joined the administration for President Geroge W. Bush in 2002 where he advised the president and senior administration officials on issues related to the US economy, particularly in the area of fund flows in the capital markets, securities, banking, and insurance issues. In 2006 Bush nominated Kevin Warsh to serve on the Board of Governors where he stayed till 2011.

His views on inflation and monetary policy

There is no doubt that his views with regard to inflation and monetary policy are the most important things to get to know. He is regarded as a hawk and he openly criticized an idea of launching quantitative easing (QE) policy in 2010 when Ben Bernanke governed the FED as he proclaimed that if he were a chair, he would not be leading the FED in this direction (QE). Notice, even as he opposed introduction of QE1, he voted in accord with Ben Bernanke in case of the so-called Q2. Moreover, he opts for lowering the FED’s inflation goal from existing 2% to a band between 1% and 2% which would mean that the current inflation would be sufficient.

3% growth still attainable

Finally, it’s worth stressing that Kevin Warsh has opted for Trump’s economic growth goal which should be at least at 3% annually even as other FED officials including the incumbent president Yellen have said that low productivity in conjunction with an aging population could find it hard to achieve it in a sustained manner. Warsh has justified his view that it’s possible through tax cuts, softening regulations on businesses and lowering government spending. It’s clear that Warsh’s opinion appears to be in line with Trump’s view on that topic which could increase his chances to be nominated.

USD gained a foothold along with US yields following the news on the Trump-Mnuchin-Warsh meeting. Source: xStation5

To sum up, Warsh is viewed by market participants as a hawk and a market’s response on Friday confirmed it. US yields increased while the US dollar got a boost immediately when the report on the alleged meeting emerged. Either way, a nomination of the next FED chair is unlikely to exert larger pressures on either the greenback or bonds. Trump announced last week that he would be making a decision over the next two or three weeks.