The five-month process to find the next Federal Reserve Chairman appears to be reaching its final days, and one candidate has emerged as the betting favorite, even though other candidates are still in the running.
Rick Rieder, BlackRock’s head of fixed income, is seen by prediction markets as the favorite to replace Jerome Powell at the central bank’s top job. Kalsi gives the Wall Street veteran a 48% chance of winning, well ahead of his next closest competitor, former Gov. Kevin Warsh, with 31%.
But sentiment was volatile, and after less than a week it was Warsh who held a decisive advantage.
What has moved the pendulum appears to be subtle: In an interview with CNBC at the World Economic Forum, President Trump called Mr. Reeder “very impressive,” and a Bloomberg News report, citing anonymous sources, said White House officials generally like Mr. Reeder.
That was enough to sway bets on sites like Calci and Polymarket, but some on Wall Street are less convinced and consider it a competitive race that has yet to be decided by a famously fickle president. Some analysts think the market’s move away from National Economic Council member Kevin Hassett is at least too hasty, given Warsh’s still-high approval ratings.
Kevin and his wife are still alive
Tobin Marcus, head of U.S. policy and politics at Wolfe Research, acknowledged market sentiment toward Mr. Rieder but said in a note that he was “still unconvinced” about the money manager, adding, “We still think Kevin is a strong possibility.”
“As recently as last week, President Trump continued to emphasize ‘loyalty’ as a standard, which is an obstacle for leaders,” Marcus added. “If this is still what the president thinks, it seems like an obvious problem for a leader who has never been an ally. We also continue to think the gambling market has misinterpreted Trump’s comments on Hassett.”
This is a reference to President Trump’s recent conversation with reporters at the White House, in which he emphasized that he would miss Hassett at NEC and that he would prefer him to remain in the position. But neither President Trump nor any White House official who has spoken on the issue has ruled out Hassett as a candidate.
Marcus dismissed Trump’s comments about Hassett as a “cheeky joke” that may not reflect Trump’s feelings about becoming Fed chairman.
Former Fed Vice Chairman Roger Ferguson expressed a similar view in a CNBC interview on Monday, saying he still believes the decision was made by “one of the Kevins.”
“Only one person knows, the rest are guessing,” Ferguson added. He called Reeder “a qualified guy (and) a favorite of Wall Street…but I really think it’s unlikely he’ll cross the finish line first.”
There is also the possibility that President Trump may use a wild card to hire someone who is not considered to be among the final candidates. He previously said he wanted to nominate Treasury Secretary Scott Bessent to the post, but the former hedge fund manager did not want that.
Neither Mr. Rieder nor White House officials responded to requests for comment.
looking at the leader
If Mr. Rieder’s line of thinking is followed, Mr. Trump would have someone who aligns with him in many ways, including a desire to lower interest rates and a willingness to use the Fed’s balance sheet to guide the economy.
“Interest rates remain too high for the housing market to (recover) vitality, and small businesses (a key provider of new jobs) and young households continue to struggle,” Rieder said after the Fed approved a third consecutive quarter-point rate cut in December. He noted that the federal funds rate is “unduly insensitive to addressing problems that are better resolved through fiscal channels.”
Mr. Rieder would be an interesting choice for many reasons, not least because he represents a company that is the face of globalist finance and will serve under a president known for his anti-globalist views.
Mr. Trump has expressed his distaste for Mr. Powell many times and has threatened to fire him multiple times, but Mr. Reeder would be very similar to the current chairman in that neither has a Ph.D. in economics, and instead have extensive backgrounds in the markets. In Mr. Rieder’s case, that meant a long stint at Lehman Brothers until the Wall Street investment banking giant collapsed in 2008, an event tied to the beginning of the global financial crisis.
At BlackRock, Mr. Rieder designs a $2.5 trillion fixed income portfolio, including the $14.5 billion iShares Flexible Income Active Exchange Traded Fund. Collectively, the company manages $14 trillion in customer funds and operates the government’s Thrift Savings Plan, a retirement fund for federal employees.
Additionally, the Fed asked BlackRock during the 2020 coronavirus crisis to take control of its controversial corporate bond purchases aimed at stabilizing the flow of capital during the extreme economic crisis. Like other major financial firms and primary dealers, BlackRock officials, including BlackRock’s influential CEO Larry Fink, are in constant contact with the Fed.
Fed independence
The potential downside, at least from Trump’s perspective, may be that Reeder has said he wants the Fed’s key interest rate to be around 3%, which is only about 0.5 percentage point below current levels and above what the president and other White House officials would like. He has also expressed support for the Fed’s independence, making it unlikely he will receive marching orders from President Trump.
Elsewhere at the annual World Economic Forum in Davos, Switzerland, where BlackRock plays a major role, Mr. Trump reflected on the difficulty of finding a Fed chair to do his bidding. Few presidents in U.S. history have attempted to influence monetary policy so openly.
“They get a job and they’re locked up for six years. They get a job and all of a sudden they say, ‘Let’s raise interest rates a little bit,'” Trump said, incorrectly stating the length of the chair’s four-year term. “It’s amazing how people change once they get the job. It’s unfortunate. In a way, it’s dishonest. But they have to do what they think is right.”
President Trump may once again become dissatisfied with the next Fed chairman, but at least among the candidates, the market will welcome whomever he chooses, including Reeder.
“BlackRock’s fixed income CIO, who has never held a policy position before, will bring a perspective based on detailed bottom-up analysis of company data rather than economic theory or models,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI. “The market will welcome Mr. Reeder into its fold.”
