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BOE’s American Guru Might Be Closest Fit to Carney as Governor

Lucy Meakin

(Bloomberg) -- If the U.K. wants to replace Bank of England Governor Mark Carney with someone with a similar resume, one outside-the-box pick would be former Federal Reserve policy maker Kevin Warsh.

Like Carney, Warsh is a media-savvy North American who helped run a Group of Seven central bank in the financial crisis having previously worked in government, on Wall Street and studied at Harvard University. At 49, he’s only a few months older than Carney was when he moved to London from the Bank of Canada in 2013.

Warsh, now a consultant and Stanford University lecturer, goes some way to fitting the mold of the professional global central banker. That’s what the U.K. Treasury has said in the past it’s looking for in someone to manage the economy through its exit from the European Union. Not only is he free from U.K. political baggage, Warsh also brings insight into the BOE’s policy making from his 2014 report for Carney on how to make the bank more transparent.

It’s not known if he’s in the running, and he declined to comment for this story.

The race for the BOE governorship is currently clouded in doubt. The U.K.’s political turmoil means it’s unclear when and who will make the choice, because the government probably won’t decide before November, and might then face an election. A shortlist of candidates drawn up by officials hasn’t been disclosed, and could anyway be discarded. Carney is due to leave in January.

Still, sporadic U.K. speculation on Warsh’s potential candidacy wouldn’t be the first time he’s been linked to a top job in central banking. As former Fed Chair Janet Yellen’s term was coming to an end in early 2018, his name emerged as a possible replacement.

While he didn’t get the role, which went to Jerome Powell, later in 2018 his criticisms of the Fed were embraced by President Donald Trump.

“Warsh’s name seems to be coming out of left field, but is certainly an interesting choice,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “A lot of people have been talking up Kevin as someone to take over from Chair Powell if the need arises in the next couple of years.”

Bush Adviser

Originally from upstate New York, Warsh started his public service by entering President George W. Bush’s circle of advisers in 2002, following seven years with Morgan Stanley. His age raised eyebrows when the then 35-year-old joined the Federal Reserve Board of Governors in 2006.

Former Fed Chairman Ben Bernanke, writing in his 2015 memoir “The Courage to Act,” praised Warsh’s political and markets savvy as “invaluable” during the financial crisis.

He didn’t always follow the leader at the Fed, which may appeal to British lawmakers who feel BOE policy makers are currently at risk of group think. In November 2010, Warsh argued against a second round of bond purchases aimed at lowering long-term borrowing costs, even though the Fed’s benchmark policy rate had been near zero for almost two years, with unemployment still high and inflation well under its 2% target.

Fed Critic

But last December he said the Fed should hold on to the bonds he didn’t initially want to buy. One day before the Fed raised interest rates, Warsh co-wrote a critical op-ed in which he warned the Fed against continuing to shrink its balance sheet while also hiking interest rates. The editorial with former hedge fund veteran Stanley Druckenmiller was promoted by Trump on Twitter.

Thanks to Carney, Warsh has done a crash course on the BOE and its policies. At the Canadian’s request, the American conducted a review of the institution’s transparency practices and procedure in 2014. He concluded that the bank should reduce the number of its meetings and publish minutes at the same time as its decisions.

As far as the top BOE job goes, the real question for Warsh may be whether he would want to sign up for an eight-year stint away from home, especially at a time when the President has shown interest in his work and is vocal about his dissatisfaction with current leadership of the Fed.

He’d also have his family to consider. He’s married to Jane Lauder, the heiress of cosmetics giant Estee Lauder and one of the world’s 500 richest people, according to the Bloomberg Billionaires Index.

Clean Break

In any case, he’d be a clean break from the BOE’s current leadership at a time when it could be trickier than usual to navigate conflicts with politicians and calm markets through Brexit.

Kate Barker, a former BOE policy maker who’s on the interviewing panel for the next head of the central bank, said that the new governor will have to be politically sensitive without sacrificing independence.

“It’s pretty difficult to foresee the political circumstances through that eight years into which this person is going to have to play themselves,” she said at an event this month.

--With assistance from Rich Miller and Craig Torres.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, David Goodman

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