Donald Trump will be able to weigh on the US Federal Reserve (Fed) by designating the one that will lead the powerful central bank and the outgoing president, Democrat Janet Yellen, does not appear so badly placed.
In an interview with the Wall Street Journal on Tuesday, Donald Trump said that Janet Yellen, who has chaired the Fed since 2014, was “absolutely in the running” but also considered former banker Gary Cohn, a Chief economic officer at the White House.
Ms. Yellen’s 70-year term expires on February 3, 2018, but the new appointment is expected to take place at the end of the year, Trump said.
While he had strongly attacked Janet Yellen during his election campaign, claiming that he kept interest rates low to favor the Democrats, Trump, who also no longer hides “loving low rates”, now says Appreciate Ms. Yellen.
“I like her style, I think she did a good job,” he told the business daily. “I would like to see interest rates remain low. Historically, it was someone who was in favor of low rates,” he added.
Since taking over the reins of the Fed, Janet Yellen is known as a “dove” in the language of the central bank which identifies those who prefer a very accommodative monetary policy favoring employment rather than fighting against the ” inflation. The “doves” are opposed to the “hawks”, few in the central bank’s board of directors these days, who fear inflation and want to tighten the monetary screw faster.
After seven years of zero-rate policy to support the recovery, the Fed, under the leadership of its first female president, has gradually and moderately raised rates. On Wednesday, the central bank has chosen to leave them as they are, waiting for inflation to strengthen.
If he decided to retain Janet Yellen, Donald Trump would take the gamble of continuity, even if the former professor who spent most of his career at the Fed is not from his political camp. It would also assume a monetary policy favorable to employment but also to the stock market. Wall Street has indeed fully profited from low-interest rates, investors seeking profit in equities.
The applicant has so far kicked in touch, assuring that she had “not yet reflected” on her own succession.
History also argues for continuity. It has frequently happened that a chairman reappoints for a second term a leader of the Fed who had been chosen by a chairman from another side.
This was the case of Ben Bernanke, nominated by the Republican George W. Bush and reappointed by Barack Obama or even Paul Volcker, chosen by the Democrat Jimmy Carter and renewed by Ronald Reagan.
Former Goldman Sachs
But Donald Trump may also prefer a man of his clan in the person of Gary Cohn, a wealthy veteran of 56-year-old Wall Street in the sometimes abrupt style, propelled in December director of the influential National Economic Council (NEC) White House, Although he was more likely to be close to the Democrats.
This would be the first time in decades that an ex-banker would take the lead of the Fed where they have sat as economists and academics. The former trader, from a modest family, Mr. Cohn climbed to the No. 2 position of Goldman Sachs, Wall Street’s powerful investment bank. He is one of the half-dozen ex-Goldman Boys who surround Donald Trump, including Steven Mnuchin (Secretary of the Treasury) and most recently Anthony Scaramucci (White House communications).
“I know Gary for a long time … Gary is certainly on the list of candidates for the Fed,” said Donald Trump.
But his past close to Wall Street may also play to his disadvantage: “I do not know the views of Mr. Cohn in terms of monetary policy, but I fear that his past experience will contaminate public perception of his decisions”, Said recently Narayana Kocherlakota, a former regional president of the Fed.
Other names circulate but were not quoted by President Trump who will also have the opportunity to appoint a new vice-president of the Fed in place of Stanley Fischer whose term ends in June.