What Would a New Fed Chair Mean for the Gold Price?

Four inside sources have said that US President Donald Trump is unlikely to nominate Janet Yellen for a second term as Fed chair.

donald trump

Janet Yellen’s days as US Federal Reserve chair may be numbered.

According to a Politico article published on Tuesday (July 11), four people close to the process have said that President Donald Trump is “increasingly unlikely” to nominate Yellen for a second term.

The leading candidate is now Gary Cohn, an investment banker who served as president and COO of Goldman Sachs (NYSE:GS) from 2006 to 2017. Cohn is currently Trump’s chief economic advisor and director of the National Economic Council.

“It’s Gary’s if he wants it, and I think he wants it,” a Republican source said. A senior congressional GOP aide commented that Cohn would likely receive widespread support, adding, “[h]e would be easily confirmed.”

Cohn’s appeal stems from a variety of factors. For one thing, if appointed he would be the first Fed chair in 40 years who is not an economist. “Speaking as a non-economist, it’d be kind of refreshing,” said Cam Fine, president of the Independent Community Bankers of America.

Others have pointed to Cohn’s straightforward approach to solving problems. “[H]e approaches things with a little more common sense [than others in the administration,” said Senator Jon Tester (D-Mont.). “More realism, less idealism.”

However, not everyone sees Cohn as a good choice. Politico points out that his appointment “could enrage economic nationalists in the White House and some staunchly conservative Republicans on Capitol Hill who don’t like [his] background as a Democrat who generally favors free trade.”

Cohn himself has not said he is interested in the job. Speaking recently about the position to CNBC, he said, “[n]o, I have a great job right now. Serving the president has been a dream come true.”

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The sources tapped by Politico said that if Cohn doesn’t take the helm at the Fed, the job will probably go to former Fed governor Kevin Warsh. Other possibilities include John Taylor, Jerome Powell and Jim Rohr.

It’s unclear how any of them would guide Fed policy, though the consensus seems to be that whoever gets the job will be taking charge at a crucial moment. The Fed is currently in the midst of hiking interest rates, and will have to get the timing right in order to avoid a recession or getting behind on inflation.

The gold price tends to fare better when interest rates are low, and often struggles when interest rates increase. The Fed has raised rates twice so far this year, but due to the slow pace of the increases, plus other geopolitical factors, gold was up about 8 percent year-to-date halfway through 2017.

Politico says that Cohn “is viewed as closer to Yellen’s preference for gradual rate hikes,” but notes that he does not have a track record on monetary policy. Any changes to the Fed’s current policy could potentially impact the gold price.

Yellen seems to be aware that she will not be asked back for a second term as Fed chair. When asked if her appearance this week before the House Financial Services Committee could be her last, she said, “[it] may well be.”

Trump was highly critical of Yellen during his election campaign, going so far as to accuse her of keeping interest rates low at the request of then-President Barack Obama. Trump has backtracked since then and said this past spring that he respects her.

Yellen’s term as Fed chair will end on February 3, 2018.

Photo by Marc Nozell via Flickr.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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