Backlash to 'Powell probe' grows… "Signs of a shifting race for the next Fed chair"

Concerns that appointing a Trump ally could trigger pushback starting at the confirmation stage

Chances rise that Kevin Warsh, former Fed governor, is nominated instead of Hassett

As a probe targeting Jerome Powell, chair of the U.S. central bank (Fed), fuels controversy over the Fed’s independence, signs are emerging of changes in the field of leading contenders for the next Fed chair. The thinking appears to be that installing a close ally of U.S. President Donald Trump at the helm of the Fed could invite a strong political backlash from the appointment stage.

According to The Wall Street Journal (WSJ) on the 16th (local time), markets are increasingly viewing Kevin Warsh, a former Fed governor, as more likely to be nominated as the next Fed chair than Kevin Hassett, director of the White House National Economic Council (NEC), who had been widely cited as a leading contender. At a White House event on rural health-care investment that day, President Trump told Hassett, "Actually, I want to keep you in your current role," also mentioning the possibility that he could remain at the White House.

Analysts say the political burden surrounding Hassett’s appointment as Fed chair is growing. After reports surfaced of a possible criminal indictment of Chair Powell by the Department of Justice, Republican Sen. Thom Tillis said he would oppose confirming any nominee for Fed chair until the issue is resolved.

The next Fed chair must be confirmed by the Senate Banking Committee. The committee currently consists of 13 Republicans and 11 Democrats, and if Tillis—who sits on the committee—joins Democrats, passage of a confirmation vote would be difficult. On the 14th, Tillis said, "If someone has worked under [him] for a period of time, can they really be independent of him?" criticizing the prospect of Hassett, a Trump ally, being appointed chair.

Meanwhile, the WSJ, citing sources, reported that President Trump interviewed Warsh last month, was deeply impressed by his insights, and conveyed a positive assessment to close aides. Christopher Waller, a Fed governor who had not drawn much attention among contenders, and Rick Rieder, BlackRock’s chief investment officer (CIO) for bonds, are also being cited as leading candidates.

Because all three are not closely tied to President Trump, they may face less burden in the congressional confirmation process, according to market views. In fact, Tillis said that if Waller is selected as the final nominee, it would "certainly alleviate major concerns." Rieder, too, is reported to have recently interviewed with President Trump, reviving speculation that he could be tapped.

Reporter Lim Da-yeon allopen@hankyung.com