In their decades of dominating the intersection of Wall Street and Washington, Goldman Sachs Group Inc. bankers have captured many of the world’s most powerful economic and financial positions. Gary Cohn, a longtime Goldman president and Donald Trump’s top economic adviser, is now within arm’s reach of the holy grail—chairman of the Federal Reserve. Trump has signaled that he’s strongly considering Cohn for the job, telling the Wall Street Journal on July 25 that he’s “certainly” in the mix to replace Janet Yellen when her term as chair ends in February. And while publicly shrugging it off, Cohn seems interested in the job, according to two White House officials.
Cohn is now viewed as the clear front-runner, according to a July 27-28 Bloomberg survey of economists, which shows him rocketing past Yellen as the odds-on favorite to be the next nominee. “All signs out of the White House are that he is the leading contender,” says Omair Sharif, senior U. economist at Société Générale SA. On top of making Cohn the most powerful central banker in the world, with influence over U. interest rates and banking rules, the job would give him a chance to escape a chaotic White House while gaining influence and prestige. It would also give Trump a way to put his own mark on another Washington institution. Picking a Fed chair is almost as grand a decision as nominating a Supreme Court justice. Trump could decide to live with his predecessor’s pick, or he could name one of his favorite bankers to the job.
Cohn, 56, would be like a bulldog guiding an institution of eggheads, according to interviews with more than a dozen people who’ve either worked with him or worked at the Fed. His fierce personality, forged over years on Goldman’s trading floors, could clash with a culture built on slow, contemplative collaboration. “Gary is definitely an instinctual thinker,” says Michael Dubno, who was the chief technology officer at Goldman before he left in 2005. He saw Cohn as aggressive and blunt, someone who would make threats and not veil them. “Whether he can go really deep on things or not,” he says, “I don’t know.”
Inside Goldman, where he worked for more than a quarter-century, Cohn rose from the trading floors to become the firm’s president and spent the past decade as the clear No. 2 to Chief Executive Officer Lloyd Blankfein. Cohn was there when Goldman engaged in some of the era’s most controversial trades, and he helped manage the firm’s pre-crisis bet against the housing market.
If he gets the job, Cohn would join old colleagues at the Fed, where three of the 12 regional bank heads used to work at Goldman. Sitting across the table from foreign counterparts at global summits, he’d see two more former colleagues, European Central Bank President Mario Draghi and Bank of England Governor Mark Carney.
Although Trump, on the campaign trail, blasted Yellen for keeping rates too low for too long, he’s since made it clear that he prefers loose monetary policy. Cohn wouldn’t likely be a radical departure from an era marked by lower interest rates. In fact, evidence suggests he’d be more dovish than Yellen. In 2015, Cohn questioned her for preparing to hike rates, saying she had “no legitimate argument to raise rates without inflation being close to—or having some inkling that it’s approaching—2 percent.”
Cohn would be the first Fed chair since Paul Volcker not to have a Ph., and he’d have to adjust to an institution that operates more like a university than a business. Policymakers weigh the input of staff economists, pondering conditions during two-day meetings before reaching decisions as a group. Each voting member has equal say. The Fed chair may be the captain and public face of the institution, but the power comes from consensus, which can sometimes take months. For example, the Fed debated raising rates for all of 2016 before the board finally voted to do so in December, its final meeting of the year. It’s also spent years discussing its $4.5 trillion balance sheet and is only now finally settling on a plan to reduce it.
With financial markets hanging on every word, Fed chiefs also have to be ultra-careful with their language. Cohn, given his tendency for off-the-cuff talk, may struggle to adapt to constant message control, something Yellen excels at. As the head of a Fed board with more than 300 Ph. staff economists, Cohn would also be inundated with research papers filled with wonky macroeconomic equations. “He’d have to read a lot, and I don’t know if that’s what he’d like to do,” says Richard Fisher, the Dallas Fed’s former president.
Some of Cohn’s old friends and colleagues think he could inject real-world experience into the Fed. Yet even when a few of them try to be complimentary, they describe an aggressive personality who might not enjoy the calm, scholarly halls of the Fed’s Eccles Building. “I can’t see why he would want to spend all his hours in those meetings dealing with material that’s as dry as a bone,” says Jay Dweck, a former Goldman partner. “He has no patience for that kind of stuff.” Another former colleague tried to imagine how a Chairman Cohn would handle silly questions from members of Congress or reporters, then started laughing. Christopher Pia, a friend and hedge fund veteran, is optimistic. “What he lacks in economic policy and political know-how,” he says, “he makes up for in tenacity and loyalty.”
But loyalty to his friends could also be one of Cohn’s hurdles. His career at Goldman “creates a perception problem for the committee,” says former Minneapolis Fed President Narayana Kocherlakota, a columnist for Bloomberg View. So does his chumminess with Trump, since the central bank is meant to operate above the fray. Its decisions can be unpopular with businesses and the public, such as raising rates and reining in growth to avoid runaway inflation. When the wall between the White House and the Fed has broken down in the past, it’s ended badly: Richard Nixon put pressure on Arthur Burns to keep rates low, fueling an era of skyrocketing prices.
If Trump does nominate him, Cohn will have to face down Senate Democrats, who’ll interrogate him on his Wall Street history. Some Republicans could take issue with his previous support of low interest rates and the hundreds of thousands of dollars he’s donated to Democrats. Alabama Republican Senator Richard Shelby, a member of the U. Senate Committee on Banking, Housing, and Urban Affairs, which would vet Cohn, shrugs off such concerns. “He came out of Goldman Sachs and he knows the financial world,” he says. In an interview on Bloomberg Radio, Dallas Fed President Robert Kaplan described what he wants to see from the next chair. He said the institution needs an “expert person that can analyze the economy and have views on monetary policy that are respected.” Kaplan was a longtime investment banker at Goldman, and he helped a young Steve Bannon get a job there.
“The reason that’s so critical is the second part of the job,” Kaplan said, “which is they’ve got to be able to mobilize a consensus.” —With Rich Miller and Jennifer Jacobs.
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