Warsh the Reformer, Powell the Plodder
Warsh has taken the lead in the race for Fed chair, with Powell suddenly on the short-list. Trump says the decision will come within three weeks, and that he has talked to four – reportedly including Yellen and Cohn. Markets will be fine with any of these. Incumbent Yellen is the safest choice. Powell is steeped in the Fed conventional wisdom, but lacks Yellen’s economics fluency. Cohn is an unknown quantity, but would likely let Fed staff take the lead. Warsh has a hawkish reputation because he opposed QE2 and QE3, and expressed himself in op-eds in a manner appropriate to op-eds, not FOMC statements. But QE is being unwound anyway by supposedly dovish Yellen. Warsh has credibility from having been Bernanke’s partner through the crisis, but he would come to the chairmanship with an ambitious reform agenda, to drain the Fed swamp, motivated by conviction that the right policy mix can pull the world out of secular stagnation.