Next Fed Chair: Kevin Warsh is the lead contender but uncertainty remains – Nomura

Analysts at Nomura explain that while they expect the White House to formally announce the Fed Chair nominee in the coming weeks, there is some risk a decision could come later in November.

Key Quotes

“Based on a variety of criteria and credible news reports, we have assigned probabilities to the five highest ranked candidates:

• 40% Kevin Warsh (former Fed Governor)
• 20% Jerome Powell (current Fed Governor)
• 20% Janet Yellen (current Fed Chair)
• 10% Gary Cohn (current Director of the National Economic Council)
• 10% Other.”

“Former Governor Warsh would likely represent a significant break from current Federal Reserve leadership.

• Warsh is likely to rely less on traditional economic analysis and economists than his predecessors. Further, we think he would move the Federal Reserve’s communication style away from the “language of the academy” to the “language of the markets.”
• Warsh would also likely be more hawkish on the balance sheet than Yellen and possibly on the longer-term federal funds rate. However, any changes in policy he institutes in these areas would likely take several years to clearly manifest themselves. 
• In the short run, we believe he could encourage more substantial changes to the current regulatory framework beyond the consensus adjustments for small community banks.”

“Governor Powell would likely largely continue the current leadership’s policy trajectory but provide a quieter voice as Fed Chair relative to Yellen. He might also be more open to regulatory changes but less so compared to Warsh.”