The president ends the suspense about who will lead the central bank. It's not a bad move — or is it?
President Trump has discarded so many norms, who’s counting now? Add one more with his decision to not reappoint Janet Yellen to a second term as chair of the Federal Reserve.
It’s been 40 years since that has happened — the disastrous G. William Miller served little more than a year before President Jimmy Carter discarded him for Paul Volcker. Otherwise, the central bank’s leadership has been steady and less prone to political interference. Volcker, Alan Greenspan and Ben Bernanke were either appointed or reappointed by both Republicans and Democrats.
Monetary policy was conducted in a pragmatic way that led to “the Great Moderation” with steady growth and low inflation. Yes, Greenspan’s infatuation with Ayn Rand blinded him to the housing bubble. But the independent central bank, led by Ben Bernanke, made the important moves to avoid a second Great Depression when the panic began. The Fed’s extraordinary measures helped lift us out of recession, despite the headwinds of a GOP Congress wedded to destructive “austerity.” Even Trump said Yellen, Bernanke’s successor, was “terrific.”
To be sure, Trump could have done worse than Jerome Powell, his nominee to succeed Yellen. Most of his cabinet and agency appointees are wildly unqualified for their posts and, as exemplified by EPA chief Scott Pruitt, driven to wreck from the inside. Powell is already a Fed governor, seen as a centrist, and brings experience in finance and the ways of D.C. He’s not a trained economist (Miller was).
Powell may turn out to be a shockingly right choice. At the least, Trump avoided the most extreme Republican desires to politicize the central bank. As University of Oregon economics professor Mark Thoma points out, that wouldn’t have been the first time — and such moves never work out well.
Slow growth, stubbornly weak wage gains and very low inflation confront Powell. So does building consensus on a Fed board where Trump will have a chance to make new appointments, perhaps more ideological ones, those who would compromise the central bank’s independence. The overall economy is humming, which papers over a host of sins (rising inequality, decaying and backward infrastructure, etc.).
What happens in the next crisis — especially with Trump and the Republicans wanting to give the big banks and Wall Street even more room to take taxpayer-backed risks? No one can say, but Powell has a tough act to follow. And his very appointment, breaking a 40-year norm, should put him on notice.
It’s interesting that at a moment where gender inequality and opportunity (including in economics) are major topics, and daily reports surface of powerful men behaving like pigs… Trump dumps the “terrific,” highly qualified woman. Maybe it was simply because she was less willing to back away from oversight of the banks. Maybe she was another piece of the Obama presidency that Trump is driven to erase. Or…?
Today’s Econ Haiku:
The tax overhaul
The takers will make out well
Takers at the top