During his run for the presidency, Donald Trump made the Federal Reserve a frequent target of his criticism, suggesting that the independent central bank was keeping interest rates low only as a political gesture to President Barack Obama. Trump declared that the stock market was in an over-inflated “bubble” driven by Fed policies, and said Fed Chair Janet Yellen’s decisions have been “political” and not based on good policy.
The overt politicization of the country’s central bank, which operates independently of the executive branch, was seen as a troubling sign by many, and Trump’s victory on November 8 immediately raised questions about whether he would try to exert influence over the Fed’s monetary policy decisions.
However, in an interview with the German business newspaper Handelsblatt that was published this weekend, James Bullard, president of the Federal Reserve Bank of St. Louis, offered some hope that Trump will not try to impose his will on the Fed’s policymaking board.
“President-elect Trump’s transition team has said that it wants to protect Fed independence,” Bullard said. “I take them at their word.”
He said it would be difficult for the Trump administration to make the argument that there is a need for a wholesale overhaul of the central bank’s policies, anyway.
“If inflation was running at 15 percent as in the 1980s, that might have been the opportunity to say that this is not working and we have to rearrange things,” Bullard said. “That is not the case today.”
There are currently two open seats on the Federal Reserve Board, and Yellen’s term as chair, as well as the term of her second-in-command, Stanley Fischer, are up in 2018. In testimony before the Congressional Joint Economic Committee last week, Yellen said that she fully intends to serve out her term. Trump has already indicated that he will not re-nominate her, which would likely lead to her leaving the Fed, giving the president another chair on the board to fill. (Nominations to the board of the Fed last 14 years, but a Fed chair is appointed for only four years at a time.)
So, while Trump will have considerable opportunity to remake the institution, he’ll have to do it over the course of several years.
“He would only gradually be able to put his stamp on the institution,” Bullard said. “I think you’ll have a lot of continuity in policy-making in the meantime.”
At a time when many are nervous about the direction Trump will take the U.S., both economically and culturally, the prospect of at least some limited continuity at the Fed offers a small measure of reassurance.