Among the growing list of reasons that a president might reject a candidate for Federal Reserve chair:
●Too hawkish on inflation.
●Too dovish on inflation.
Wait. What, pray tell, does Nazism have to do with U.S. monetary policy?
Normally the answer is: not a lot. But President Trump has hardly proved himself a slave to normalcy.
For the non-Fed-watchers out there, a bit of context: The Fed chair is not only the world's most powerful central banker; arguably he or she is also its second-most-powerful person. That's because the chair has enormous influence over the international economy and markets. A wrong move can destroy trillions in wealth.
Current Chair Janet L. Yellen's leadership term ends in February, and earlier this year the White House launched a search for her successor (assuming she's not reappointed; more on this later). The person running that search has been National Economic Council Director Gary Cohn. Not just coincidentally, Cohn also quickly emerged as the leading contender to get the job.
"Citizens standing up for equality and freedom can never be equated with white supremacists, neo-Nazis and the KKK," he said, implicitly criticizing his boss. "I believe this administration can and must do better in consistently and unequivocally condemning these groups and do everything we can to heal the deep divisions that exist in our communities."
Again, normally, a White House adviser's call to condemn white supremacists and salve social wounds would hardly merit a story. Cohn's comments dominated a full news cycle.
Trump was reportedly furious about his underling's disloyalty — or at least, his underling's greater loyalty to the cause of anti-Nazism than to the knee-jerk defense of everything the boss does.
And so, apparently, decideth the president: no Fed chair for you.
Taking Cohn out of the running for the second-most-powerful job in the world over a too-forceful denunciation of Nazis looks pretty damning.
You know what's almost as damning? The fact that Trump was considering Cohn in the first place.
Cohn, former president at Goldman Sachs, is not an economist, as Fed chairs have been for the past few decades. That's not necessarily disqualifying.
What should have been disqualifying were the many demonstrably false things he appears to believe about the economy.
Things such as: Trump's tax cuts will get us to sustained rates of economic growth above 3 percent (something no respectable economist believes, partly for demographic reasons).
Or that the unemployment rate "is a very, very fictitious rate. It's only that low because the participation rate has gone downward." (The labor force participation rate has fallen, part of a longer-term trend, but that's not the main reason the unemployment rate is low.)
To justify rolling back post-crisis financial regulations, Cohn has also argued that banks are afraid to lend. (Available evidence suggests credit is cheap and pretty amply available.)
With Fed Vice Chair Stanley Fischer's unexpectedly early resignation taking effect next month, Trump will get to fill a majority of the seats on the Fed's board of governors. He has so far dragged his feet on this personnel project, nominating only one candidate for the existing three (soon to be four) openings. That nominee is Randal Quarles, a forceful deregulation advocate selected to serve in the Fed's top regulatory post.
Maybe Trump has too many other things on his plate, or maybe he's just having difficulty finding suitable candidates. The traditional Republican Fed possibilities — John Taylor, Kevin Warsh, Glenn Hubbard — are all probably far too hawkish for Trump's taste. The self-proclaimed "King of Debt," Trump has said repeatedly that he loves low interest rates, seemingly regardless of where we are in the business cycle.
In fact, Trump will be hard-pressed to find a qualified candidate more dovish than Yellen. Cohn, whose views on inflation and interest rates are less well understood, seemed to be the leading Fed contender primarily because Trump knew him.
Cohn's removal (for now, anyway) from the pool of candidates boosts Yellen's chances of reappointment quite a bit. Which would actually be a great outcome. Yellen is a brilliant economist, a skilled and consensus-building leader, and an unusually strong prognosticator. The vice chair under her predecessor Ben Bernanke, she's part of the reason we didn't plunge into another Great Depression a decade ago.
Let's hope Trump does the right thing, even if it might be for the wrong reasons.