Donald Kohn, named today as a potential nominee for the Federal Reserve chairmanship, is a policy pragmatist who helped Chairman Ben S. Bernanke navigate the financial crisis.
Unlike Janet Yellen and Lawrence Summers, two other candidates for the job, Kohn doesn’t come from an academic environment. After spending 40 years at the Fed, he’s more likely to be guided by experience than economic theory.
“He is a central banker,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Yellen and Summers have acquired the policy-making experience needed to do the job, but they come originally from a different background.”
Like Bernanke, Kohn, a former Fed vice chairman, is mindful of the Fed’s independence and the limits of its authority. He would probably continue the Fed’s new focus on financial stability as integral to achieving its dual mandate to strive for stable prices and full employment.
President Barack Obama discussed his choices for the Fed chairmanship in a visit to Capitol Hill today. Obama defended Summers and named Kohn and Yellen as potential nominees, according to a Democratic aide who sought anonymity to discuss a private session.
The president “took a minute to stand up for Larry Summers,” said Representative Brad Sherman of California, following the meeting with House Democrats.
Kohn, 70, who is now a senior fellow at the Brookings Institution in Washington, was Bernanke’s most important supporter and adviser during the crisis. He became a Fed governor in August 2002 and served as vice chairman from June 2006 until June 2010.
The Philadelphia native was one of former Chairman Alan Greenspan’s closest advisers as director of the Division of Monetary Affairs from 1987 to 2001. He helped Greenspan manage the 1987 stock-market crash and adopt the federal funds rate, the rate for overnight lending among banks, as the Fed’s main signal for monetary policy.
At the Division of Monetary Affairs, Kohn was in charge of policy strategy, presenting several options for action at meetings of the Federal Open Market Committee and giving equal weight to each. Even now, his analysis is partial to understanding fully positions that might be contrary to the consensus.
Laurence Meyer, a Fed governor from June 1996 to January 2002, said he spoke to Kohn every Friday before FOMC meetings, testing his own views.
“There is no better preparation for being chairman than being director of Monetary Affairs,” said Meyer, now senior managing director at Macroeconomic Advisers LLC in Washington. “He has years and years of experience linking monetary policy to forecasts and outcomes. He understands how to build consensus. Every chairman valued him.”
After leaving the Fed, Kohn took on jobs related to financial stability, a new direction after his long experience with monetary policy.
He serves as a member of the Bank of England’s Financial Policy Committee and is on the advisory committee of the U.S. Treasury Department’s Office of Financial Research.
At the Fed, Kohn wasn’t enticed by the perquisites of office. Fed governors have a private garage with an elevator reserved for them in the Marriner S. Eccles Building on Constitution Avenue. When the weather was fair, Kohn pedaled to work and used the parking space for his bicycle.
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