President Trump to Announce Fed Pick Next Week -- Update

By Kate Davidson and David HarrisonFeaturesDow Jones Newswires

President Donald Trump said Friday he would announce his choice for the next leader of the U.S. central bank "sometime next week," and said he has "somebody very specific in mind."

"It will be a person who hopefully will do a fantastic job," Mr. Trump said in a video posted to Instagram on Friday, adding, "I think everybody will be very impressed."

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Mr. Trump was leaning toward tapping Fed governor Jerome Powell, who was going through the final stages of the White House vetting process, according to a person familiar with the matter.

Stanford University economics professor John Taylor was also under serious consideration, and Mr. Trump in an interview Wednesday said he was thinking of offering another term to Fed Chairwoman Janet Yellen.

White House officials caution that nothing is final until the president announces his choice. He is known for making spur-of-the-moment personnel decisions, and for changing his mind.

Mr. Trump has upended the usually staid selection process by openly weighing the pros and cons of various candidates and asking lawmakers, businesspeople and media personalities for their input. As the process drags on, contenders for the job have faced heightened scrutiny from detractors hoping to sway the president's choice.

Conservatives who support Mr. Taylor's nomination have mobilized against Mr. Powell, a Republican who served in the George H.W. Bush administration, assailing him for supporting the Fed's easy-money policies during his five years at the Fed.

They also say Mr. Powell didn't do enough to oppose what they see as overly stringent financial rules the Fed imposed after the crisis, despite his recent public remarks that the Fed should rethink some postcrisis regulation. And they point to Mr. Powell's previous confirmation votes, when a significant number of Republicans opposed him, as reason for the White House to think twice about putting his name forward.

U.S. Rep. Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee, said Thursday he worried Mr. Powell wouldn't be aggressive enough in paring back the Fed's portfolio of assets purchased to spur the economy after the recession.

"I'm particularly concerned about how we effectively unwind this balance sheet, and John Taylor more than any other candidate is well positioned to do that," he said. "Jerome Powell, I don't know, but I have my concerns."

A Fed spokeswoman said Mr. Powell declined to comment.

Mr. Taylor, meanwhile, is facing questions about whether he would follow his own mathematical formula for setting interest rates -- dubbed the Taylor Rule -- if he becomes chairman. Under the rule, short-term interest rates would be around 3.5% now, compared with the Fed benchmark federal-funds rate's current range between 1% and 1.25%, according to Michael Feroli, chief U.S. economist at J.P. Morgan.

Mr. Taylor's supporters have said he wouldn't be so rigid as his arguments might suggest, with some saying he would be less likely than Mr. Powell to raise interest rates to curb inflation that could stem from GOP tax cuts.

Some Wall Street economists say uncertainty about what Mr. Taylor would do could rattle the markets.

A Taylor nomination would be "a volatility-inducing event," said Tom Porcelli, chief U.S. economist at RBC Capital Markets. Peter Hooper, chief economist at Deutsche Bank Securities said "there would be some negative reaction in the markets" if Mr. Taylor gets the nod.

If Mr. Taylor does deviate substantially from his own rule, "markets will be very interested in understanding if his reasons are politically motivated or based on economic fundamentals," said Torsten Slok, chief international economist for Deutsche Bank Securities. "This will be a big potential challenge for Fed communication."

Mr. Taylor, in an email, responded that in a 1993 paper he wrote that policy rules "cannot and should not be mechanically followed by policymakers" and he noted he had reiterated that at a recent Boston Fed conference.

Peter Nicholas contributed to this article.

Write to Kate Davidson at and David Harrison at

(END) Dow Jones Newswires

October 27, 2017 18:10 ET (22:10 GMT)