Presidents know, and sometimes resent, the immense power of the Federal Reserve. Simply by playing with interest rates, the central bank can stimulate or restrain the economy faster and more effectively than Congress and the White House can.
The Fed also has enormous regulatory powers. It can even create money with the snap of a finger if it sees a need to lend to failing financial institutions.
But presidents also know that giving the Fed some distance, and respecting its independence, is both good policy and good politics.
All recent presidents, for instance, have reappointed Fed chairmen they inherited to at least one more term. Ronald Reagan reappointed Paul Volcker, first named by Jimmy Carter. Reagan’s three successors all reappointed Alan Greenspan, whom Reagan named to the job toward the end of his presidency. And Barack Obama reappointed Ben Bernanke, originally picked by George W. Bush.
OPPOSING VIEW: Yellen's monetary policy too easy
Now it's President Trump's turn. His approach to most issues has been to repudiate his predecessors, particularly Obama, in as many ways as he can think of. Trump is said to be considering dumping the current chairman, Janet Yellen, who has held the post since 2014 and will reach the end of her four-year term at the end of January.
Over the weekend, Trump said Yellen was still in the running, but he is considering at least two others among four alternatives. On Monday, the president said he is "very, very close" to a decision.
Rather than governance by repudiation, might we suggest another approach: Follow the oath of doctors, and first do no harm.
There is no reason not to reappoint Yellen, the first woman to hold the post. She is a capable and well-respected chairman who gained valuable experience as a Fed governor during the 2008 financial crisis. As chairman, she has ably begun the process of unwinding the policies that kept the economy from sinking too far into the abyss.
Other candidates said to be in the running all have their shortcomings. Jerome Powell, a Fed governor, has an impressive résumé. But he is close enough to Yellen to raise the question of why not just stay with the chairman you know.
Gary Cohn, the former No. 2 at Goldman Sachs who heads Trump’s National Economic Council, has no prior experience at the Fed, which would prompt needless uncertainty about the direction of monetary policy.
Kevin Warsh and John Taylor, two financial scholars affiliated with Stanford University, have serious black marks against them.
As a Fed governor, Warsh famously worried about inflation as the economy was falling into what would become known as the Great Recession. And Taylor’s views can be summarized in the title of one of his books, Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Economic Crisis.
Arguments that bureaucrats, and not bankers, were behind the financial bubble and bust are commonplace — and wrong. For the people who make these arguments, it is not enough to accept that capitalism is a great engine of social progress; instead, it must be held harmless. If it seems to spin out of control from time to time, other culprits need to be found.
This is a troubling position for someone whose job as Fed chairman would be in part to look at Wall Street with some skepticism.
With the economy doing well at the moment, there's a strong case to be made for maintaining the tradition of bipartisan continuity at the Fed. Indeed, the more one looks at the alternatives, the better Yellen looks.
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