Trump’s latest Fed candidate seen strengthening board as risks bubble

Bloomberg

The White House’s latest pick for the Federal Reserve Board was deliberately chosen for her financial stability expertise and knowledge of the Fed system to round out a board of monetary policy experts and Wall-Street savvy lawyers.
President Donald Trump plans to nominate Nellie Liang, a Ph.D. economist who ran the Fed’s financial stability unit until her retirement last year. It’s a timely choice as some credit markets are showing signs of aggressive risk-taking.
Liang’s long study of that topic was a key factor in the winning the nod, according to a person familiar with the matter.
The news of her intended nomination broke on September 20.
Financial conditions are heating up with some credit markets showing signs of overheating. The Fed’s gradual pace of interest rate increases, combined with low interest rates globally, has supported a reach for yield that has weakened standards among some lenders.
The market for leveraged loans, a higher-risk type of corporate lending, now tops $1 trillion, for example.
With the last two recessions triggered by financial bubbles, the Trump administration saw Liang as the missing piece the Fed needed.
“She is calm, analytical, and reasoned, which is exactly what you would want in a regulator, should another crisis hit,” said Kevin Hassett, chairman of the White House Council of Economic Advisers, who didn’t oversee the research on Liang’s selection.

Crisis Fighter
The administration wanted somebody with direct experience in financial crises and knowledge of the inside workings of the Fed. Liang checked both boxes.
She has an extensive research record on financial stability and risk monitoring. When the Fed stood up a new division to oversee financial stability, she was its first chief.
Liang respects the discipline of the market, which can punish investors for taking miscalculated risks. For her to support federal intervention in an institution, “it would have to be unequivocally systemic,” said her former colleague Seth Carpenter, who is now chief US economist at UBS Securities in New York.
That should appeal to senators from both parties who will vote on her confirmation.
“The smartest of the big banks that I work with want someone who knows the issues and with whom they can work,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics in Washington.