Trump has self-serving reasons to reappoint Janet Yellen as Fed chair -- but probably still won't

Trump Yellen 4x3Carlos Barria/Reuters; Composite by Bob Bryan/Business InsiderPresident Donald Trump and Fed Chair Janet Yellen

President Donald Trump has many good reasons to reappoint Janet Yellen to Federal Reserve chair when her first term expires in February of next year. That doesn’t mean he will make the right choice.

For one thing, her policy of raising interest rates only gradually is helping to stimulate an economy that’s still not firing on all cylinders after a seven-year recovery that has not been widely shared.

That is essential if Trump hopes to hit his rather lofty growth target of 3%.

Another reason to keep Yellen is she’s a known quantity to financial markets that, to Trump’s delight, have continued to hit new record highs. Uncertainty over the future leadership at the Fed would lead to doubts about the central bank’s policy course, and likely knock heady stock prices off course.

“It would be a smart decision to reappoint Janet Yellen and appointing somebody Wall Street knows,” said Steve Rick, chief economist at CUNA Mutual Group, in an interview with Business Insider. “The markets would welcome a Janet Yellen reappointment. I still think she is the frontrunner.”

A third good reason would be a rare show of bipartisanship — Yellen is a Democrat who served in the Clinton administration.

Rick is not alone in urging Trump to consider renaming Yellen, whom he has not ruled out but has also shown no particular sympathy toward.

Her chances appeared to improve after Trump’s falling out with apparent favourite Gary Cohn, the former Goldman Sachs president who is currently head of the National Economic Council. Kevin Warsh, a former Fed board governor and Morgan Stanley banker, also keeps coming up as a possibility despite a string of policy misjudgments during and after the Great Recession.

Still, the likelihood of a Yellen reappointment remains slim for a number of reasons.

For one thing, Trump does not have a strong record of appointing women to positions of high power. Just four out of the president’s 23 cabinet members are women, and only UN ambassador Nikki Haley is part of the national security apparatus. The Fed chair is about as high as it gets in the world’s largest economy.

Second, Yellen has vocally opposed Trump’s agenda for Wall Street deregulation, which runs against many of the new rules that she was charged by Congress with implementing.

Third, she’s a Democrat whom Trump wrongly accused during the campaign of keeping interest rates low to help President Barack Obama.

Yellen said in her September press conference she had not discussed the matter of a reappointment with Trump.

“I have said that I intend to serve out my term as chair, and that I’m really not going to comment on my intentions beyond that,” she told reporters. “I will say that I have not had a further meeting with President Trump. I met with him early in my term, and I’ve not had a further meeting with him.”

A Wall Street Journal survey of 56 economists found nearly three quarters supported a second term for Yellen, who was previously Fed vice chair and before that, president of the San Francisco Fed.

Even if Trump does reach across the aisle to nominate Yellen, in keeping with recent tradition of cross-partisan central bank chair appointments, it’s not clear whether the PhD economist would accept.

The former Minneapolis Fed president Narayana Kocherlakota, who used to work with Yellen, called on her to refuse any offer of Trump’s because of the president’s response to the violent white nationalist protest in Charlottesville, Virginia.

“My advice to the president remains unchanged,” the University of Rochester professor said of his own earlier suggestion that Trump appoint Yellen. “But my advice to Chair Yellen is to decline any such offer from Trump.”

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