WSJ Endorses Warsh, Taylor; Says Powell "Status Quo" Is Not What Trump Campaigned On

Tyler Durden's picture

Despite bookies' odds surging and Politico 'sources' suggesting Jerome Powell will be the next Fed head, it appears The Wall Street Journal Editorial Board is not buying it, and endorses Warsh or Taylor, saying that Trump needs a leader at the central bank who supports faster growth.

President Trump is finishing his interviews to choose the next Federal Reserve Chairman, and the same voices who oppose him on everything are chanting in unison - reappoint Janet Yellen or choose her Republican running mate, Jerome Powell. Mr. Trump should consider the implications for the economy, which will be a major part of his legacy.

The Yellen-Powell advocates are telling the President that they have avoided big monetary mistakes, that they favor low interest rates, and there is no reason to take a risk on someone new. Some in the Trump Treasury are also saying that Mr. Powell is someone they can dominate. So go with the status quo.

But what someone should also tell Mr. Trump is that the monetary status quo won’t hold no matter who is Fed chair. Ms. Yellen has presided over an unusually placid financial period, not least because economic growth was so slow through the Obama Presidency.

That isn’t likely to last—at least not if Mr. Trump’s tax and deregulatory policies succeed in spurring faster growth. The Yellen Fed is already raising rates and unwinding the $4.5 trillion balance sheet it built over eight years. The question Mr. Trump should ask is who should run the Fed during this uncertain monetary transition, especially if the economy leaves its slow-growth doldrums.

One certainty is that the Yellen-Powell Fed believes in the Phillips Curve trade-off between unemployment and inflation. Once the economy hits what the Fed staff considers to be “full employment,” its economic models signal the need for higher interest rates. With the jobless rate already at 4.2%, the Fed staff are worried that rising wages will push up prices, and so interest rates will have to rise to prevent inflation.

Yet as Ms. Yellen has acknowledged with some puzzlement, inflation has been remarkably contained. She can’t explain why because it doesn’t fit the Fed’s current economic models. Another issue is how much labor slack exists despite the low jobless rate. The labor participation rate remains at low levels not seen since the 1970s, and one reason is the departure of prime-age males from the workforce. Faster growth and rising wages might coax them out of dad’s basement or too-early retirement.

The Yellen-Powell Fed also appears to doubt that the economy can grow faster. Each quarter Fed Governors and regional bank presidents release estimates for future growth. At the Sept. 20 meeting, they raised their projection to 2.4% for this year. But their median estimate for 2018 is a mere 2.1%, followed by 2% in 2019 and 1.8% in 2020 and beyond. In other words, they are anticipating little growth impact from Mr. Trump’s deregulation or tax reform.

This fits with the Fed’s dominant neo-Keynesian worldview that tax cuts aren’t pro-growth and the U.S. is fated to a long era of “secular stagnation.” That isn’t what Mr. Trump campaigned on, and the question is whether a Yellen-Powell Fed would accommodate faster growth or feel it must rapidly increase interest rates. Unless it changes its economic models or expectations, the current Fed won’t.

*  *  *

All of which argues for new leadership. Ms. Yellen is tied to the current models and assumptions, and nothing in Mr. Powell’s six years as a Fed Governor has suggested a different point of view. His many speeches have gone along with the status quo at the time, even as many of his colleagues have dissented in word or vote. He is not likely to override the staff.

The White House has leaked that two of Mr. Trump’s finalists are Kevin Warsh and John Taylor. Both would be change agents at the Fed. Both are also frequent contributors to our pages and have been right in their diagnoses of the slow-growth policies of the Obama era.

Mr. Taylor, a Stanford economist who has a monetary rule named after him, would bring academic respect to the Fed’s Open Market Committee. He worked in the George W. Bush Treasury and prevented currency panics in Argentina and postwar Iraq from spreading.

Mr. Warsh is a former Fed Governor who was part of Ben Bernanke’s inner circle during the 2008 financial panic. He correctly diagnosed the weak capital and liquidity positions of the banking system, even as regulators at the New York Fed said the problem was confined to Bear Stearns.

This crisis experience is a major recommendation for the Fed chair because we may face financial turbulence as the Fed raises rates and unwinds its bond portfolio. As Mr. Warsh warned when he left the central bank in 2011, the Fed has pushed investors into riskier assets with uncertain consequences. Who knows what might show up naked as the tide recedes? Mr. Warsh also has credibility with the leading central bankers in China, Europe and Japan that would be essential in any new currency or financial panic.

More even than Supreme Court Justices, predicting the performance of a Fed Chairman is difficult. But the best guides are experience and bedrock economic principles. Mr. Trump and the country will do better with a fresh voice who knows how to manage in a crisis and believes that faster economic growth without inflation is possible and necessary.

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Giant Meteor's picture

Faster growth eh? Yeah that's the ticket ..

hedgeless_horseman's picture

 

In ancient Rome
There was a poem
About a dog
Who found two bones
He picked at one
He licked the other
He went in circles
He dropped dead
Freedom of choice
Is what you got
Freedom of choice!

https://youtu.be/9jVoroHx3IU

Giant Meteor's picture

 I was going for my usual nihilist retort, you know, without much supporting evidence, intelligence nor wisdom, but thought better of it. After awhile one's simply inciting to the choir, and there should be a law covering that momentarily.

Any discussion of "FED chair succession" is fairly much, as most all else, meaningless at this point.

So I thank you for that, and I offer up for your edification ..

Moderat

"Damage Done"

Scratch the words with false inspiration

A thorn buried deep in my side

Speared lips cracked and parted

Pearly teeth cleft in half

 

I see the damage, I’ve done

Rip the tongue from my hight

I see the damage, I've done

Rip the tongue from my hight

I go out and stare at the sunlight

Until the tears stain my eyes

Finding answers of questions unwanted

Scoures the pain from my mind

 

No, I see the damage, I’ve done

Rip the tongue from my hight

No, I see the damage, I’ve done

Rip the tongue from my hight

 

Got so much teaching...ohhh...

 

No, I see the damage, I’ve done

Rip the tongue from my hight

No, I see the damage, I’ve done

Rip the tongue from my hight

https://www.youtube.com/watch?v=v2gZbMvTl-c

spastic_colon's picture

faster growth of what?? the balance sheet??

LightBeamCowboy's picture

Has anyone else noticed how the inevitable result of central banking/Keynesianism is a schizophrenic body politic? We have some people crying for more growth even though they're already packed like sardines, and other people (or often the same people) voting with their wombs and sperm to NOT have growth (children). The bankers, who after all, are the ones really running the show, desperate for the excuse to print more money to pay the interest on the old loans, override the reproductive vote of their native population by bringing in millions of immigrants, legal and illegal, to make up the difference. These millions of immigrants are desperate to leave the overcrowded places they came from, and are clueless that they're only accelerating the overcrowding wherever they're going. It would NEVER occur to them to have fewer babies where they are, because their religion forbids that option.

"Until you change the way money works, you change nothing." -- Michael C. Ruppert

any_mouse's picture

Exemplified by the EU state bureaucrat who exclaimed, "To sustain our welfare state, we need migrants."

Like wanting to maintain Fukashima and adding radioactive fuel to keep it going.

MoreFreedom's picture

It's hard to say what Trump believes about the Fed.   His economic knowledge isn't so hot, considering when asked about the budget deficit, he's responded talking about the trade deficit.  Was he intentionally distracting or changing the subject, or is he that ignorant?

Somehow I think he believes the BS about the Fed being able to stimulate the economy because that's what he's heard in the past, what statists are whispering in his ears, and perhaps he's afraid of changing course and getting a big crash.   After all, he hasn't even attempted cut spending, just minor changes (<< 1%) to where the spending goes. 

As I expected, Trump is mostly more of the same status quo on the most important measure of government: it's spending.

 

Endgame Napoleon's picture

It is more growth for growth’s sake, benefiting only the top 20% of salaried earners and the welfare and child-tax-credit-boosted citizen / non-citizen parents, working the huge number of part-time/temp/churn jobs at low-wage levels.

They can do it.

They do not need coaxing by the Feds because of pay-per-birth, unearned income from taxpayers that covers their rent and groceries, monthly cash assistance and yearly cash assistance in the form of a child tax credit between $3,337 and $6,269. At $6,269, that child tax credit equals 4 months of full-time wages in a $9-per-hour job.

For the welfare / taxfare lotto winners, low and unreliable, earned income from churn jobs is just icing on a cake of reliable, unearned income that is their real bread-and-butter. Ditto for part-time-churn-temporary-low-wage employees with spousal income or child support that covers their main household bills, such as otherwise unaffordable rent.

Republocrat/Demopublican Solution: more $6,269 child tax credits to lure even more moms with unearned income into the part-time workforce to compete for jobs with single, childless citizens, noncustodial parents and single moms whose kids are grown — the groups who have no unearned, womb-productivity income — making things even more miserable for citizens who must cover all bills, including unaffordable rent, on earned-only income.

These groups already compete with hordes of single moms and illegal / legal immigrants with a sole, male breadwinner, working the welfare-reform-required minimum of 20 hours per week to stay below the income limit for welfare.

This will lure zero “prime-working-age” men into the workforce and zero non-womb-based-welfare-augmented, “prime-working-age” females into a workforce, where, as one momma-clique employer put it, some mom interviewees have “somethin’ comin in” to supplement the rock-bottom wages.

The expanded child tax credit will expand sales at Ashely Furniture. When doing a vehicle inspection in a low-wage insurance job, as a childless, single citizen with a bachelor's degree and 4 licenses who could not afford rent on my [[[[[[per-capita]]]]], earned-only income, a single mom customer whose rent and groceries were paid by taxpayers proudly showed me the new master bedroom set in he back seat that she had just purchased with her $6,269 “child” tax credit.

Babies love master bedroom furniture and trips to Florida beaches with the latest boyfriend. And, God knows, the moms have plenty of excused time off to vacation, spending their child tax credits on excursions away from their desks with no repercussions in these mom-dominated, back-watching crony workplaces.

It is just more pick-and-choose, tax-welfare (taxfare) stimulus, designed by crony parents to reward other crony parents, billions of which will even go to noncitizen parents.

These tax-welfare lotto winners most certainly do not work hard. They only work the required 20 hours per week, as specified by the Clinton Welfare “Reform” of 1996, to stay below the LOW income limit for welfare.

It is just one more kick in the head to childless, single citizens, noncustodial, single parents and older, single moms with now unproductive wombs. Hard work, sales generation, account retention (and other types of production), much less daily and all-day attendance, is for naught. It simply IS NOT valued in the landscape of low-wage / churn / part-time jobs that do not pay enough to cover a full range of household bills for employees below the managerial level in an employment scene where labor costs trump everything. And welfare / taxfare / spousal income-aided workers can accept the pay.

curbjob's picture

Faster growth of the wealth gap no doubt.

Main Street has been ignored for the last decade, but that's where we are finally seeing volatility 

yogibear's picture

Want change. Clean house and change out the Federal Reserve. 

Even Kash-Carry should be ousted. He's been groomed by Goldman Sachs , TARP man Hank Paulson.

wmbz's picture

Here's an old idea, audit then abolish the un-fed!

P.S. Screw Woodrow Wilson... Worst son of a bitch President ever!

Philo Beddoe's picture

Say what you will about Wilson but at least he fessed up. 

Rex Andrus's picture

Not publicly and not in his lifetime. That's like saying Nixon fessed up because what he said on tape was absolutely true, but he still let Kissinger rasputin us. Hard.

The Wizard's picture

But the best guides are experience and bedrock economic principles.

What "economic" priniciples is Donald to rely on? C'mon, you can't be that ignorant, it's a ruse.

Someone should tell Donald that Keynesian models are a joke and are great at portraying an illusion when it comes to "real" world.

small axe's picture

"... would bring academic respect to the Fed's Open Market Committee."

God save us from academics. Bernanke did enough damage.

Rainman's picture

The past 3 Chairsatans borrowed faster growth from the forseeable future...sorry .. move along now.

GreatUncle's picture

At first they borrowed a penny from the future.

Then they borrowed a nickel, a dollar, a $100, $1000, $10000 ... etc .etc to now borrowing so far into the future. So what can we ascertain?

From the day the first penny was borrowed from the future that is now the current (actually means there will be less what we borrowed in the future also) they have been running a NIRP system (deflating debt) but conning everybody with money creation for inflation. Imagine a real system that is in reality NIRP and deflating when you can CTRL-P / QE and keep all that brand new FIAT value to yourselves.

Sweet that ...

You would end up being so wealthy compared to the serfs that people might start to notice. SURPRISE WE NOTICED!

 

 

 

Green2Delta's picture

These choices don't offer enough diversity. I want a Fed Chair that looks like a Target cashier. Purple or green hair, tattoos, lots of piercings and scabs covering most of their exposed skin. 

any_mouse's picture

Don't forget ambiguously androgynous.

No neon pink hair?

Sudden Debt's picture

possible without inflation :)

HA!!

 

The west needs a currency devaluation by 90% to survive. And that will mean that every generation above 40 years old will suffer hard times.

The younger generations who have less capital will get a fresh start.

 

But it destroys a lot of capital for the upper group and they also have the most power so for now that's a longshot 

First they'll try to increase taxes by 25%, freeze wages for another 2 decades and increase bureaucracy which will be responsible for most of the "growth".

You can only push for higher inflation when most of the wealth is destroyed in society. 

GreatUncle's picture

But to do that you would also have to smash all the entitlement the younger generation currently believe is theirs.

One thing saying you can't have that another when the younger generation will be demanding it for themselves.

Remove all freebies, everything and if you want it you must pay for it yourselves.

Enough demand it survives, 0 demand it goes.

From IVF, trans gender ops, to pensions, education everything ... if you have no need for it then you do not pay.

 

ThinkAgain's picture

Warsh needs to roll-out http://www.planck.org/publications/BQE-Bilateral-Currency-Swaps a.s.a.p. Plus using http://www.planck.org/publications/Financial-QE-vs-Productive-QE to restore the industrial base of the USA. Financial QE is just oil on the fire: solving nothing making things even more complicated. See http://www.planck.org/publications/Productive-Capitalism-Perspectives or http://www.planck.org/publications/Financial-Capitalism-vs-Productive-Ca.... Chicago Economics has fooled the USA (and the world) for too long: it delivers only wealth concentration by the 'market'. Production delivers wealth distribution by the market. Time to behave as economic adults and not as adolescents.

lester1's picture

No Jews running the Fed this time !

Old Pecksniff's picture

Larry the Cable Guy would be a good choice.

jimymac's picture

There is a huge war going on and the Central Banks are in it up to their eyeballs. Cryptos must be controlled just like currencies. Every Country in the World is sleepless about decentralized money. Can they really allow that, NOT!

Give Me Some Truth's picture

If crypto money is a threat to fiat "money," it will be deemed a threat to the Powers that Be who will attempt to defeat this threat.

Same with gold and silver, which they have pretty much defeated as an alternative to their printing press money. This is something that MUST be done if the Status Quo is going to remain the Status Quo. 

In other words, NOT attacking "sentiment" for gold and silver is NOT an option for them.

wisebastard's picture

BS....that means the exact opposite.....what is really gonna change in the criminal syndicate .......7:30pm friday 10/20/17 is defiantly prime time for a speech they dont want anyone paying attention to....

GotAFriendInBen's picture

With wages going up a pittance and never keeping up anywhere near real inflation, this whole debate is bread and circuses

Main Street will get fucked harder

Stripped of savings and livig hand to mouth, so what good will higher rates do for them?

GotAFriendInBen's picture

Fk the Fed. they are only there to enrich the banksters

Serve no purpose on Main Street, Why does good intentioned Main Street Trumpy not disband them?

Give Me Some Truth's picture

Okay, let's be clear here. Whoever is selected as Fed chair is going to support and defend the "status quo." 

Same as whoever is elected president (or serves in the leadership of the House or Senate) is going to support and defend the "status quo."

Supporting the Status Quo is ALL that matters to the Establishment. These people have to protect the printing press or the Status Quo disappears, and with it, the members of the Establishment's wealth, power and prestige.

mily's picture

What about Neel? Lovely picture with stars and stripes, no crazy eyes, just $2 and no chance for the king seat? Naah, sandnigg'r blood pumping through his heart, egg plant

MrBoompi's picture

We're going to get the same thing regardless of who Trump nominates.  The Federal Reserve, a private corporation, is owned by its member banks who, in turn, are owned and controlled by the wealthiest people on the planet.  (Of course nobody is allowed to actually see who owns anything, or there might be some problems with the public in that event.  I just have to guess the people who own the majotities of banking stocks are people like Warren Buffet, the Rockefellers, or the Rothschilds.)  Really all the Fed Chair has to do is take orders from the owners of the big banks and push their policies with a straight and serious face.  You can bet anyone under consideration has been selected by the owners of the largest banks themselves, not Trump.  Not any president has that power.  

any_mouse's picture

This is how we know that our elected officials do not matter.

We get to vote for Red or Blue. We can contact our congress critters. We can attend local party functions.

We don't get to vote for the FED Chair. We cannot contact anyone at the FED. We don't even know who owns the FED.

Congress cannot discuss the FED. At all. Ever.

POTUS may only pick the Chief from approved candidates.

No EO is ever issued regarding the FED.

Every year a NDAA. Not much changes, except less freedom and privacy for US citizens and more wars abroad.

Never the FED. Nothing changes externally.

What else, in WashDC, is never allowed to be discussed?

Aid to Israel. AIPAC influence on elections.

Pure coincidence.

Rex Andrus's picture

Fuck WSJ = Murdoch  =MI6 = The Club

any_mouse's picture

I was hoping the red X on the thumbnails indicated that HVT had been eliminated by a premier decapitation team.

Not to be.

"Someday, son, this war will target the real enemy."

Batman11's picture

Making a right pig's ear of it with the world's major central bankers. 

Central bankers may come and go but the data remains for further analysis.

Mark Blythe has been looking at the data for the Euro-zone when Trichet was in charge of the ECB.

https://www.youtube.com/watch?v=B6vV8_uQmxs&feature=em-subs_digest-vrecs  

It’s not good.

Richard Werner was in Japan around 1989 when its economy blew up.

He has done a thorough investigation and again the BoJ’s role comes up smelling of something most unpleasant.

He has recorded his investigation in a book “Princes of the Yen”.

https://www.youtube.com/watch?v=p5Ac7ap_MAY

The data indicates the FED and BoE don’t know what they are doing.

The US:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png 

1929 and 2008 stick out like sore thumbs.

The UK:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png

The real estate and financial speculation economy is unsustainable due to the build up of unproductive lending in the economy.

China’s central banker has just spotted the coming Minsky moment.

The BIS and Steve Keen saw it a long time ago.

Richard Koo “Surviving in the Intellectually Bankrupt Monetary Policy Environment”

https://www.youtube.com/watch?v=8YTyJzmiHGk

He studied Japan after 1989.

The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

What did our mainstream, neoclassical economists get wrong this time Richard?

They pushed Greece into debt deflation as their economics ignores the effects of private debt.

He has explained things to the IMF.

“We cannot solve our problems with the same thinking we used when we created them.” Albert Einstein.

He’s right you know.

They need to be up to date with the latest thinking and people have been learning a lot from their mistakes.

 

 

any_mouse's picture

THEY KNOW WHAT THEY ARE DOING.

They are neither inept nor "misguided". Their models are not "wrong".

Global criminal organizations sucking real wealth out of economies and nations.

The Central Banks must be destroyed.

Batman11's picture

Some evidence helps and they keep providing more as they go along.

 

Rebelrebel7's picture

Very amusing Tyler. It would be rematkable to see a president dominate someone who controls the money supply and  the economy.