(Adds Yellen comments)
By Steve Holland
WASHINGTON, Oct 20 (Reuters) - President Donald Trump is
considering nominating Federal Reserve Governor Jerome Powell
and Stanford University economist John Taylor for the central
bank's top two jobs, in an apparent bid to reassure markets and
appease conservatives hungry for change.
Under that scenario, either Powell or Taylor would take the
reins from Fed Chair Janet Yellen when her term expires in early
February, and the other would fill the vice chair position left
vacant when Stanley Fischer retired this month.
"That is something that is under consideration, but he
hasn't ruled out a number of options. He'll have an announcement
on that soon, in the coming days," White House spokeswoman Sarah
Sanders told reporters on Friday.
Making Powell, a soft-spoken centrist who has supported
Yellen's gradual approach to raising interest rates, the next
Fed chief would provide the continuity in monetary policy that
The addition of Taylor, who has backed an overhaul of the
Fed and embraced a more rigid rule-oriented monetary policy,
would be a feather in the cap of conservative Republicans who
feel that monetary policy has been too loose under Yellen, who
was named as Fed chair by Democratic President Barack Obama and
has led the central bank since February 2014.
"I think Powell might be the safer pick insofar as we know
what we're getting," said Michael Feroli, chief U.S. economist
at J.P. Morgan Chase. "He's a guy who obviously knows the Fed
culture, how the (policy-setting) committee operates, so for
some of those soft skills we know he would be effective."
Powell has embraced the Yellen Fed's monetary policy,
keeping the faith that a tighter job market will eventually push
wages higher and end a lengthy period of worryingly low
Taylor has spent the last two decades refining and
advocating wider use of a rule that lays out where interest
rates ought to be, given certain conditions of inflation and the
broader economy. His rule implies that rates should be higher
than they are now.
Yellen, speaking at an economic conference in Washington on
Friday evening, mounted a strong defense of the tools the Fed
has used to fight the sharp economic downturn triggered by the
financial crisis and said there was a risk of another crisis in
which those "unconventional policies" may be needed again.
Yellen, who Trump has indicated could still be named to
another term as Fed chair, was not asked about the Fed job and
did not offer any comment on the selection process.
"SCOPE FOR DISAPPOINTMENT"
Although Taylor is highly regarded within the Fed, his
rule-based rate-setting position has spurred criticism that he
would handcuff U.S. monetary policy.
Taylor pushed back at a meeting at the Boston Fed on
Saturday, saying he favored a flexible implementation of policy
rules and did not want to tie the Fed's hands or suggest that he
was motivated by a distrust of policymakers.
"I think that's completely incorrect," he said. "I trust
policymakers; (rules) are an effort to make policy better."
Some analysts suggest that fears that Taylor would bring an
inflexible monetary policy with him to the Fed, as some
Republicans in Congress hope, are likely exaggerated.
"There is some scope for disappointment if people think
putting Taylor in will just lead to mechanical-based policy,"
Cleveland Fed President Loretta Mester, speaking with
reporters on Friday, seemed to agree.
"Even if you pick a rule, the rule itself would need to be
modified given the structure of the economy," she said. "But I
do think being systematic, looking at the kinds of information
we look at systematically over time, articulating our strategy
for policy and being less discretionary is a good idea."
At the same time, there are concerns that the combination of
Powell and Taylor atop the world's most powerful central bank
could send a confusing signal to markets.
It is unclear whether Trump, who has criticized Yellen's
stewardship but also said on several occasions that he preferred
rates to stay low, wants to dramatically alter the Fed's
Although he appears to be tilting to Powell and Taylor, in
addition to Yellen the Republican president has interviewed his
top economic adviser Gary Cohn and former Fed Governor Kevin
Warsh for the Fed chief position.
(Reporting by Steve Holland; Additional reporting by Jeff
Mason, Lindsay Dunsmuir and Howard Schneider; Writing by Ann
Saphir; Editing by Paul Simao and Leslie Adler)
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