DoubleLine Funds CEO Jeffrey Gundlach has an unconventional pick to be the next Chair of the Federal Reserve: Neel Kashkari.
Gundlach told Bethany McLean at Vanity Fair’s New Establishment Summit on Tuesday that Kashkari, currently the president of the Federal Reserve Bank of Minneapolis, should be the next Fed chair because “he’s the most easy money guy at the Fed right now.”
“I think I’m the only guy on God’s green earth that thinks it will be Neel Kashkari,” Gundlach said.
As of Wednesday morning, odds listed on political prediction site PredictIt had Kevin Warsh, a former Fed governor appointed during the Bush administration, as the most likely candidate to succeed Chair Janet Yellen.
Kashkari had shot up to second-most likely to succeed Yellen after being unlisted before Gundlach’s comments on Tuesday evening. PredictIt did not have a market for Kashkari before Gundlach’s call.
Jerome Powell, currently a Fed governor, is seen as the third-most likely candidate. Yellen is fourth.
On Monday, Kashkari wrote an essay which outlined why some of the Fed’s policies have been holding back the U.S. economy, particularly when it comes to generating inflation which has persistently undershot the Fed’s 2% target. As a member of the Federal Open Market Committee, the Fed committee which votes on monetary policy, Kashkari has voted against the Fed’s actions twice.
Gundlach said Kashkari’s latest essay effectively argued for more easy money policies — which basically involves keeping interest rates low and maintaining a large balance sheet — which would be an economic positive for President Donald Trump’s base.
“I think the President, if he’s going to retain his base, needs to deliver something to the disaffected middle class,” Gundlach said. “A stronger dollar is not good for achieving that agenda. A weak dollar is actually positive. And easy money is more a friend of a weak dollar than tight money.”
Following Trump’s election, bond yields moved higher, the dollar rallied, and the stock market rallied in anticipation of faster economic growth and more restrictive trade policies coming from the Trump administration’s economic plans. Through most of 2017, the dollar has declined relative to other major currencies and hit levels not seen in almost three years back in September, however if the Fed continues on its plans to raise interest rates in the coming years the dollar would be expected to re-strengthen.
Kaskhari, who is not a traditionally trained economist and previously worked at Goldman Sachs (GS) as well as oversaw the TARP program under President Obama, made firming regulations on big financial institutions a cornerstone of his agenda after taking over the reigns at the Minneapolis Fed in early 2016.
Specifically, as Kashkari told Yahoo Finance last year, “A lot of work has been done since 2008, but the biggest banks are still too big to fail. And in my view, we need to do something about that.”
Gundlach, however, was fairly sanguine when it came to concerns McLean raised over Kashkari’s view of large banks, which could be seen as a negative were he to take the top job at the Fed.
“Easy money would be good for the banking sector,” Gundlach said. “It would make the proposition of the banks who lend long and borrow short more attractive.” A Fed chair who might be seen, then, as a natural enemy of the banking sector might not really be bad thing if his goal is to support policies that keep money abundant in the financial system.
So Gundlach — who thinks there is no chance that Yellen will be named, nor would want to be named, to another term at the top of the central bank — has once again made an outside call.
In 2016, Gundlach predicted that Donald Trump would win the presidency, telling McLean that he never thought Hillary Clinton would be president and that after meeting Jeb Bush he didn’t think he had the right stuff to win.
And so when it comes to central banking, Gundlach once again sees an outsider on the horizon.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
Read more from Myles here:
- JPMorgan: The cryptocurrency market looks like a pyramid scheme
- America’s shortage of workers is about to get ‘much worse’
- The government can’t stop people from making the single-biggest investing mistake
- It’s never been harder to fill a job in America
- Berkshire’s Bank of America win is more proof you can’t invest like Buffett
- Two charts show why the stock market today is nothing like the tech bubble