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Wednesday, October 11, 2017

Will a Pimco Alum Take Over the Fed?

News summary by MFWire's editors

The next chairman of the Fed might be an alumnus of a certain giant mutual fund shop in Southern California.

U.S. President Donald Trump will pick Neel Kashkari, president of the Federal Reserve Bank of Minneapolis and a lifelong Republican, as Janet Yellen's successor as chairman of the whole Federal Reserve system, predicts Jeffrey Gundlach of DoubleLine Capital in a speech last week covered by Bloomberg, Breitbart, and CNBC.

Gundlach rival and former Kashkari boss Bill Gross, now at Janus Henderson, agrees that Kashkari would be a good pick but predicts that Trump will choose someone else. DealBreaker concludes that "we don't deserve Neel Kashkari as Fed chairman" (the pub is amused by Kashkari's Twitter presence, among other things). Multiple pubs note that Kashkari is not on Trump's much-touted short list, which includes Yellen herself, National Economic Council Director Gary Cohn, former Fed governor Kevin Wash, and current Fed governor Jay Powell. And an unnamed "administration source" tells CNBC that Kashkari is not being considered.

On the one hand, Gross is Kashkari's former boss. Gross was still co-CIO of Pimco when Kashkari joined in December 2009 to build out a stock-picking business at the bond fund shop, so Gross would've been involved with vetting Kashkari eight years ago. And Gross now praises Kashkari as "a brilliant man" with "great experience." One might expect Gross to have an inside line to Kashkari, so when Gross says Trump won't pick Kashkari, he could be in a position to know.

On the other hand, Gundlach is another Southern California asset management leader, and it's plausible to think that he, too, might know Kashkari personally and thus could be in a position to know if, for example, Kashkari is being vetted for the job. And given how ugly Gross' 2014 departure from Pimco turned out, it's conceivable that Kashkari was closer with other Pimco folks and thus might be closer with Gundlach (an outsider) than with Gross (the fallen-from-grace king). Though a source familiar with DoubleLine was unable to confirm any personal connection between Gundlach and Kashkari.

Gundlach's language in his Vanity Fair "New Establishment Summit" speech last week, as retold by Bloomberg and CNBC, does not hint one way or the other at any inside knowledge Gundlach might or might not have about Kashkari and the Fed. Gundlach simply makes the case for Kashkari being Trump's best pick policy-wise, over: Cohn, who unlike fellow Goldman Sachs alum Kashkari actually helped run Goldman; Yellen; Powell; and Warsh. Breitbart argues that, compared to other candidates, Kashkari has views that are the most lined up with Trump's views.

Kashkari, for fundsters who need a reminder, worked for a NASA contractor and later Goldman Sachs (he's another engineer-turned-finance-guy) where he met then-Goldman CEO Hank Paulson. After then-U.S. President Bush hired Paulson as Treasury Secretary in 2006, Paulson brought Kashkari to Treasury. In 2008 during the financial crisis, Paulson promoted Kashkari to run the $700-billion TARP financial institution bailout. Kashkari was replaced in 2009 after Obama replaced Bush, and by the end of that year he had joined Pimco. He left Pimco in in 2013. He ran for Governor of California in 2014, and he was named president and CEO of the Minneapolis Fed in 2015. Also in 2015, he married Christine Ong, a former reporter at mutual fund industry trade publication Ignites. 

Edited by: Neil Anderson, Managing Editor

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