US Federal Reserve chief Janet Yellen testifies before the House Financial Services Committee in Washington, DC, on February 10, 2016 (AFP Photo/Nicholas Kamm)
As President Donald Trump looks to put his stamp on the Federal Reserve, an unexpected frontrunner has emerged to lead the US central bank: current Fed Chair Janet Yellen.
Trump, in an interview Tuesday with the Wall Street Journal, confirmed that Yellen, who has led the Fed since 2014, was “in the running, absolutely,” along with his National Economic Council director Gary Cohn.
Trump expects to name his nominee for the four-year term by the end of the year. Yellen, 70, was appointed by former President Barack Obama and her term as Fed chief ends on February 3, 2018.
Trump, who harshly attacked Yellen during the presidential campaign, expressed support for low interest rates, the Fed’s primary policy in the wake of the financial crisis.
“I like her; I like her demeanor. I think she’s done a good job,” Trump told the newspaper. “I’d like to see rates stay low. She’s historically been a low-interest-rate person.”
In the most simplistic central bank parlance, Yellen is known as a “dove,” meaning she is seen as less aggressive about raising rates to control inflation. By contrast, “hawks” are more aggressive favoring early interest rate hikes to stamp out price increases before they appear.
But Yellen also is a respected monetary policymaker and economist who has a reputation for basing decisions on data, and in fact prior to the 2008 financial crisis when she previously served on the Fed, she supported rate increases when the economy was growing strongly.
After about seven years of keeping interest rates at zero, the Fed has begun moving to modestly lift rates, albeit at a very cautious pace with only two increases so far this year. On Wednesday, the Fed kept interest rates unchanged, releasing a statement that noted that inflation is running below the Fed’s target level.
A decision to pick Yellen, an academic prior to joining the US central bank, where she has served in multiple roles, including vice chair, likely would be cheered by markets, which have smiled on low interest rates and favor continuity.
Yellen, a Democrat, has said she intends to finish out her term, but has sidestepped questions on whether she wants another term.
Historically, most Fed chairs have served two terms, even when the White House changes parties.
Yellen’s predecessor, Ben Bernanke, was picked by Republican George W. Bush and kept on by Obama. Paul Volcker was tapped by Democrat Jimmy Carter and reappointed by Republican Ronald Reagan. Alan Greenspan served 19 years under multiple presidents of both parties.
From Goldman to the Fed?
But Trump also has his eye on Cohn, 56, a Wall Street veteran who joined the Trump administration soon after the election despite being known as a Democrat.
But Trump also has his eye on Cohn, 56, a Wall Street veteran who joined the Trump administration soon after the election despite being known as a Democrat.
If appointed, it would be the first time in decades an ex-banker would take the reins at the Fed, a post that has been reliably filled by academic economists like Yellen under a string of presidents.
A former trader raised in a modest household, Cohn rose to the number two post at Goldman Sachs, the iconic Wall Street bank.
He is one of a large cadre of “Goldman Boys” in the Trump administration, including Treasury Secretary Steven Mnuchin and newly-installed White House communications chief Anthony Scaramucci.
“I’ve known Gary for a long time, but I’ve gained great respect for Gary working with him, so Gary certainly would be in the mix,” Trump told the Journal.
But the Fed also is the main regulator overseeing banks like Goldman, so Cohn’s appointment has its detractors.
“I know little about Cohn’s monetary policy views but I worry that his past employment experience would contaminate the public’s perception of Fed decisions made under his leadership,” said Narayana Kocherlakota, a former president of the Minneapolis Fed, according to Bloomberg.
“On that basis alone, I would exclude him from consideration.”
Trump said he was considering a couple of other contenders besides Yellen and Cohn, but declining to specify who they were.
The US president also needs to fill other openings at the central bank, including the Fed’s number-two as Vice Chair Stanley Fischer’s term expires in June 2018.
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