Behind the Scenes

The Fed's German Influencer

Federal Reserve Jackson Hole Economic Symposium
Paves the way for the Fed's decisions: Thomas Laubach. Source: Bloomberg

Hardly a household name, Thomas Laubach is probably the world’s most influential German economist. At press conferences hosted by Janet Yellen, the outgoing chairman of the Federal Reserve, the official’s face can be glimpsed directly behind hers, his boyish features shining under a graying mop of hair. And he’s likely to become even more important when Ms. Yellen passes the baton next February to her successor, Jerome Powell.

At the Fed, Mr. Laubach is director of the all-important monetary affairs division. His office is close to Ms. Yellen’s, not far from the olde-worlde hall where the Fed’s governors vote on US monetary policy. Before becoming division head, Mr. Laubach was associate director of the central bank’s research and statistics branch, and previous to that, chief economic adviser to the Fed’s regional bank in Kansas City.

Mr. Laubach’s career is unusual at the world’s most powerful monetary institution. German economists are sometimes maligned as too conservative for the Anglo-Saxon realm – too focused on principles, say, or too inflexible when practical solutions require a bit of improvisation. Economics, after all, is as much an art as a science. But Mr. Laubach, who does not deny his Teutonic roots, clearly thrives on this slippery terrain. Adam Posen, the outspoken chief of the Peterson Institute for Economics in Washington and a onetime policy-maker for the Bank of England, once described Mr. Laubach as “German in name only.” That was a compliment.

Under Ms. Yellen, Mr. Laubach’s influence has been considerable. In his current job since 2015, he helped craft the Fed’s strategies, prepared its regular policy statements and set the agenda for meetings of the Federal Open Market Committee, the main policy-making board. Mr. Laubach also co-authored a recent study on the effects of reversing the Fed’s quantitative easing since 2007, helping pave the way for the central bank’s recent shift towards tighter monetary policy.

Adam Posen, president of the Peterson Institute, once described Laubach as "German in name only."

Even after his career took off at the Fed, Mr. Laubach maintained his links to the old country, writing numerous articles and teaching at the University of Frankfurt. In 2008 he was appointed a research professor at the Bundesbank, Germany’s central bank.

The odds are Mr. Powell will retain his seasoned lieutenant, who can surely fill in the gaps in his boss’ skills and experience. Granted, in his five years as a Fed governor, Mr. Powell acquired a deep knowledge of monetary affairs and respect among policy experts. But unlike Ms. Yellen, who made her name as an economist, Mr. Powell is chiefly a lawyer and administrator. He is also the first Fed chief in decades to land the top job without a Ph.D. in economics, a degree held by Mr. Laubach (whose doctoral adviser at Princeton University was Ben Bernanke, a two-time chairman of the Fed).

While the feisty Ms. Yellen was known to keep her own counsel, Mr. Powell will likely depend more on the guidance and support of his aides. The Fed’s next chairman may have a knack for fostering consensus, but he will need sound arguments to manage the confident, articulate regional bank governors who sit on the Fed’s monetary policy committee. Comfortable working in the shadows, the low-key Mr. Laubach will be the ideal partner to hone these arguments.

Frank Wiebe is Handelsblatt’s New York correspondent specializing in finance policy. Jeremy Gray, an editor at Handelsblatt Global, contributed to this article. To contact the authors: wiebe@handelsblatt.com, j.gray@vhb.de

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