A dovish Republican is emerging as a frontrunner to head the US Fed as Donald Trump prepares to announce whether he will replace Janet Yellen when her term expires in February.
The US president is set to make his decision by the end of next week.
Betting markets currently suggest Jerome Powell has a 41 per cent chance of securing the nomination, with Yellen well behind at 13 per cent and Kevin Warsh and John Taylor each appearing to have a 10 per cent chance.
Former frontrunner Gary Cohn fell out of the mix last month.
Western Asset portfolio manager John Bellows says Trump wants his Fed chair to be a Republican, low-interest-rate person based on previous comments he’s made. Powell fits both those categories.
Bellows notes low interest rates are important for two of Trump’s priorities: infrastructure and manufacturing. That could rule out John Taylor, who Trump has recently indicated is a frontrunner alongside Powell.
RBC Global Asset Management’s chief economist Eric Lascelles says not to discount Yellen and places a 30 per cent of her getting reappointed, although he notes there have been rumours that she could turn it down.
M&G head of retail fixed income Jim Leaviss adds that as a Democrat Yellen could be an easy scapegoat for Trump when markets turn, while a candidate like Warsh is a family friend and would be more difficult to fire.
Leaviss earlier this year warned of the risk of a “gold nutter” or Trump business crony replacing Yellen.
Lascelles adds a Powell or Yellen appointment could prompt a slight retreat in yields.
Contenders for US Federal Reserve chair
- Jerome Powell
The current frontrunner for the nomination has served on the board of governors for the Federal Reserve since 2012 with his term set to end in 2028.
The Republican graduate of Princeton and Georgetown also served in the Treasury under George H W Bush, where he was responsible for policy on financial institutions and the Treasury debt market.
He was also a partner at Carlyle Group.
- Janet Yellen
Yellen became the first woman to head the central bank in its 100-year history when she took up the role of chair in 2014, appointed by president Barack Obama. She had joined the central bank as vice chair in 2010.
She previously served as president and chief executive of the Federal Reserve Bank of San Francisco from 2004 to 2010, having previously been a professor at Harvard and Berkeley.
She is married to Nobel prize winning economist George Akerlof.
- John Taylor
The Stanford professor is best known for the Taylor Rule, a rules-based approach to monetary policy that would take interest rates above 4 per cent by 2019.
He served as senior economist on the President’s Council of Economic Advisers on two separate occasions – in the 1970s and from 1989 to 1991.
- Kevin Warsh
Kevin Warsh has previously served as member of the board of governors at the Federal Reserve from 2006 and 2011, but is currently a Stanford economics professor.
A graduate of Stanford and Harvard he served as the Fed’s representative to the G20 and emissary to Asian economies.