Personnel Is Policy: Who Donald Trump Could Appoint To The Fed

There is perhaps no better way of summing up the direction of any organization than the phrase: “Personnel is policy.” With regard to government, that means that the people who are put into positions of power indicate the direction of actual policy more clearly than the President’s statements. President Ronald Reagan’s tenure was a good example of this. Despite his many public statements in favor of gold, his appointments to key positions and in particular to the Gold Commission were people who undermined his publicly-stated positions. Whether he was aware of this or not is up for debate, especially as we now know of his battle with Alzheimer’s.

That is the danger that might face the current Trump Administration where, despite his many public statements favorable to the gold standard, President Trump may end up appointing officials who hold exactly the opposite view as he does. This is particularly important now that news outlets have been reporting this week that President Trump is set to appoint Randal Quarles to the Federal Reserve Board as Vice Chairman of Regulation. Mr. Quarles’ biography is as establishment as it comes. He received his A.B. from Columbia University and his J.D. from Yale Law School. He worked at the Carlyle Group, a leading private equity firm whose close political connections to former senior Administration officials are legendary. His wife is Hope Eccles, grand-niece of Marriner Eccles, the Federal Reserve Board’s Chairman from 1934-1948, after whom the Fed’s headquarters building is named. Mr. Quarles also served as Under Secretary of the US Treasury, Assistant Secretary of the Treasury for International Affairs, US Executive Director of the IMF, US Executive Director of the European Bank for Reconstruction and Development, etc. Doesn’t exactly sound like a guy who is about to shake things up, right?

While his nomination isn’t official yet, let’s look at some other possible candidates President Trump might appoint to the Federal Reserve’s Board of Governors. We’ve split them into four categories.

1. The Dream Team – those candidates who would be the best possible from the perspective of those of us favoring sound monetary policy.

2. Establishment Favorites – the favorite candidates of the Establishment, or those already under consideration by the Administration.

3. The Compromise Candidates – these candidates are all former Presidents of regional Federal Reserve Banks. While they wouldn’t be the first choices of either the Establishment or of advocates of sound monetary policy, sending former regional Fed Presidents to serve on the Board might send a message to the Board to take into account not just the views of the Washington/New York financial-political elites.

4. The Dark Horses – while perfectly qualified for serving on the Board, these candidates are probably not as well known to the general public, and even to most policymakers, as some of the others.

Remember, President Trump will have at least four appointments to make in his first term, maybe even five if Chairman Yellen resigns her seat after her chairmanship is up, so his decisions on appointments could have a strong impact on the conduct of monetary policy going forward.

The Dream Team

Ron Paul

You’d be hard-pressed to find a libertarian or libertarian-leaning economist who wouldn’t drool at the idea of Dr. Paul being placed on the Federal Reserve’s Board of Governors, preferably as its chairman. The author of legislation to audit the Fed, end the Fed, and allow for a system of competing currencies, Dr. Paul understands the problems with the Federal Reserve System better than anyone else in Washington. Of course, he understands that appointing good people to bad agencies isn’t going to solve any problems, so the likelihood of him accepting a nomination is slim.

Jim Grant

The long-time publisher of Grant’s Interest Rate Observer and frequent TV commentator on MSNBC, Bloomberg, and other media outlets, Jim Grant would be Dr. Paul’s choice for chairman of the Fed’s Board of Governors. Combining decades of up-close observation of New York’s capital markets with a keen knowledge of economics and economic history, Mr. Grant would make a great additional the Fed’s Board. But because he has been so publicly outspoken in his criticism of Federal Reserve policies, he probably has enemies within the Administration who would try to stymie his nomination.

John Allison

The former CEO of BB&T and former President of the Cato Institute, he rivals Dr. Paul in his willingness to embrace radical policies to fix systemic problems facing the banking system. He is perhaps the biggest name aside from Dr. Paul to advocate for the abolition of government-subsidized deposit insurance. While this would force banks to act more prudently, eliminating government deposit insurance is a political minefield that would require delicate and astute communications policies and public relations in order to bring it about. Still, that someone of his stature would even stick his neck out to advocate for such actions is a very good sign. Mr. Allison had previously been touted as a possible Treasury Secretary pick, so let’s hope that he’s still somewhere on Mr. Trump’s draft board.

Peter Schiff

The founder of EuroPacific Capital, Schiff has been an outspoken critic of the Federal Reserve’s loose monetary policy. As one of the few analysts to spot the growing housing bubble during the mid-2000s, Schiff was roundly and repeatedly criticized during his national media appearances for being a Chicken Little. Events proved him correct, however, and he was more than happy to make his critics eat crow. Loud, outspoken, and opinionated, Schiff would certainly shake up Federal Reserve Board meetings and ensure lively and heated debate. But more importantly, Schiff has an understanding of economics and reality that most Fed economists don’t. Which is why he probably won’t get a nomination.

Establishment Favorites

John Taylor

The creator of the eponymous “Taylor Rule,” Taylor is a fixture within Republican circles in Washington. Any Congressional hearing on monetary policy is almost guaranteed to have Dr. Taylor as a witness. Given his decades-long reputation within the economics profession, Taylor should be a shoo-in for a Fed nomination, once President Trump gets around to fleshing out his picks.

Glenn Hubbard

The dean of the business school at Columbia University and a former chairman of the Council of Economic Advisors, Hubbard was touted as a potential Fed chairman pick during the George W. Bush Administration. The selection of Ben Bernanke instead gave rise to one of the funniest Fed-related parody videos on YouTube. Hubbard’s name has been floating around as a potential Fed chairman pick in the event that Janet Yellen decides to resign at the end of her term as chairman.

Kevin Warsh

A former Governor on the Federal Reserve Board, Warsh’s name has been mentioned with respect to some of the open Fed Board Governor slots, particularly the Vice Chairman for Regulation slot that now seems to be going to Randal Quarles. Warsh obviously has the experience to return to the Board, the question then would be whether he would receive a nomination or whether he would even want to return.

Tom Vartanian

Vartanian was a former Reagan Administration official who is currently a partner at Dechert LLP. His name had been circulating as a possible pick for the Fed’s Vice Chairman for Regulation, a position that currently seems likely to be filled by Randal Quarles. Whether Vartanian would be considered for another of the open slots remains to be seen.

The Compromise Candidates

Tom Hoenig

The former President of the Kansas City Fed, Hoenig currently serves as Vice Chairman of the Federal Deposit Insurance Corporation (FDIC). His name was also mentioned as a possible choice for the Fed’s Vice Chairman for Regulation. His current work at FDIC certainly sets him up well for that position, and his reputation as a monetary policy hawk would certainly put the Fed on notice that tightening would be the name of the game going forward.

Richard Fisher

Fisher has a reputation for being relatively hawkish and for wanting to break up the big banks. Appointing him would send a message that business as usual is over. The major strike against him in terms of getting a nomination is that fact that he was formerly a Democratic candidate for Congress and has made some comments that are critical of President Trump. It’s doubtful that he would be willing to play nice and walk back some of his comments in order to get nominated to the Board.

Charles Plosser

Plosser, the former President of the Philadelphia Fed, was another Fed President who had a reputation for being a monetary policy hawk. Does he have the connections among Trump Administration decisionmakers to get a spot on the Board?

Jeffrey Lacker

Lacker just recently stepped down from his position as President of the Richmond Fed, having originally been scheduled to step down in October of 2017. He resigned under a cloud, having acknowledged that he discussed sensitive internal FOMC information with a financial industry analyst. However, he was one of the more outspoken monetary policy hawks and had staffers working for him at the Richmond Fed who seemed more aware of the dangers of extraordinary monetary policy than many members of the Fed’s Board. Would his “scandal” keep him from getting a nomination, or might he be rewarded for being the Fed’s fall guy by getting an appointment to the Board?

The Dark Horses

Lew Lehrman

The former President of Rite-Aid, Mr. Lehrman was a former gubernatorial candidate in New York, and a member of the United States Gold Commission, where he and Dr. Ron Paul co-authored the Commission’s Minority Report, later republished as The Case for Gold. An ardent supporter of the gold standard, Mr. Lehrman founded “The Gold Standard Now” to advocate for a return to the gold standard.

Judy Shelton

Dr. Shelton is an economist who served as an advisor to President Trump. She directs the Atlas Network’s Sound Money Project and assisted in President Trump’s transition. A former senior research fellow at the Hoover Institution, Dr. Shelton is well connected in monetary policy circles and is strongly sympathetic to the gold standard.

David Stockman

Mr. Stockman is a former Congressman and former Director of the Office of Management and Budget. A strong critic of current Federal Reserve policies, Mr. Stockman remains active in writing at his website, David Stockman’s Contra Corner. He is perhaps best-known for his criticism of the federal government’s budget policies, arguing that continued deficit spending cannot be maintained indefinitely.

William White

Dr. White is the former Head of the Monetary and Economic Department of the Bank for International Settlements (BIS), the “central bankers’ central bank.” He is most famous for warning about the growing housing bubble before it burst and for criticizing then-Fed Chairman Alan Greenspan’s monetary policy. The only knock against him is his non-US citizenship, although that shouldn’t prove too high a hurdle. And with President Trump as the chief decider, an accelerated path to US citizenship could almost certainly be arranged should that be needed.

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