Focus On The Fed

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If Janet Yellen Goes, the Fed’s Current Policy May Go With Her
By BINYAMIN APPELBAUMAUG. 24, 2017

GRAND TETON NATIONAL PARK, Wyo. — Liberal activists who stage an annual protest in favor of lower interest rates at the Federal Reserve’s annual conference here are planning a different kind of demonstration this year. They plan to don “Yellen wigs” on Friday to demonstrate in support of Janet L. Yellen, the Fed chairwoman, whose first term ends in February.

President Trump must soon decide whether to renominate Ms. Yellen or pick someone similarly inclined to emphasize economic growth. Or, instead, he could accede to the wishes of many conservatives for a Fed chairman more worried about inflation.

The looming decision is injecting an element of uncertainty into monetary policy after years of relative stability. Ms. Yellen continued the aggressive economic stimulus campaign that was launched by her predecessor, Ben S. Bernanke, during the financial crisis that began 10 years ago, and she has moved slowly to end it.

Gene B. Sperling, the former director of President Barack Obama’s National Economic Council, said the choice was a “fascinating test” for Mr. Trump, pitting conservative ideology against “the stark reality of politicians worried about how the economy performs.”

The approaching fork in the road is likely to be a major topic of conversation as Fed leaders, central bankers from other countries and academic economists gather in Grand Teton National Park on Friday and Saturday for an annual policy conference.

The basic question nearly everyone is asking is how quickly the Fed will raise interest rates.

The Fed already has raised its benchmark rate twice this year, to a range of 1 percent to 1.25 percent. Officials are debating whether to raise rates for a third time, but no decision is expected before the final meeting of the year in December.

That would leave the benchmark rate at a level Fed officials regard as neutral. Low rates increase economic growth by encouraging borrowing and risk-taking, while high rates weigh on economic growth by reducing those activities.

Mr. Trump has said that he is considering another term for Ms. Yellen. But Gary D. Cohn, the director of his national economic council, is also a candidate. Ms. Yellen has not commented on her own plans, beyond committing to serve out her term.

Mr. Trump has not named other candidates, but likely possibilities for any Republican president include Kevin Warsh, a former Fed governor; John B. Taylor, an economist at Stanford University; and Glenn Hubbard, an economist at Columbia University.

Mr. Trump has sent mixed signals about his priorities. In public comments, he has repeatedly described himself as a lover of low interest rates. But last month, he nominated Randal K. Quarles, a financial industry executive who has advocated the Fed to raise interest rates more quickly, as the Fed’s vice chairman for supervision.

The Trump administration also plans to nominate Marvin Goodfriend, a Carnegie Mellon University economist who is an even more outspoken critic of the Fed’s stimulus campaign, to an open seat on the Fed’s board.

Regulatory issues may prove an even more important consideration. Mr. Trump wants to relax some of the restrictions placed on the financial industry in the wake of the 2008 crisis. Ms. Yellen has agreed that there is room for improvement, but she has cautioned against any significant reduction in regulation.

Ms. Yellen is scheduled to speak here about financial regulation on Friday morning.

Mr. Cohn has rarely spoken publicly about his views on monetary policy, but he is a key adviser to Mr. Trump on the administration’s plans to cut financial regulation.

In addition to criticism from conservatives, Ms. Yellen also has faced criticism from liberals who argue that the Fed is moving too quickly to raise rates.

Fed Up, a coalition of liberal groups, has made a tradition of bringing protesters to the Jackson Hole conference to press for more stimulus, and it staged a teach-in on Thursday to emphasize that the economic recovery remains incomplete.

“Let’s not prematurely choke off this recovery,” Susan Helper, an economist at Case Western Reserve University, told the activists gathered outside the conference hotel.

But this year, the group is less concerned about what Ms. Yellen might do, and more concerned about someone else taking her place.

Mr. Sperling, who also addressed the protesters, compared Ms. Yellen to Jim Harbaugh, the University of Michigan football coach who has improved the performance of that program but not yet beaten its archrival Ohio State.

“The Bernanke and Yellen Fed do deserve praise for very expansive and creative monetary policy and that there has been real policy since 2010,” Mr. Sperling said. “We should also equally recognize it doesn’t mean things are good enough.”

The choice confronting Mr. Trump parallels the Fed’s internal policy debate.

Inflation remains persistently sluggish. The Fed aims for 2 percent annual inflation, and it expects to miss that target for the fifth-straight year. Some Fed officials want to wait for evidence that inflation is rebounding before raising rates again.

Most officials, however, see the low level of unemployment as a sufficient reason for confidence that inflation will rebound. “I think we should continue with the gradual rate path,” Esther L. George, president of the Federal Reserve Bank of Kansas City, which hosts the annual monetary policy conference here, told CNBC. “While we haven’t hit 2 percent, I’m reminded that 2 percent is a target over the long term, and in the context of a growing economy, of jobs being added, I don’t think it’s an issue that we should be particularly concerned about unless we see something change.”

Both Mr. Bernanke and Ms. Yellen were nominated in October, but there is little sign that the Trump administration is moving toward a quick decision. Mr. Trump had told The Wall Street Journal that he plans to make a decision by the end of the year.

That would leave relatively little time for the person selected by Mr. Trump to be questioned and confirmed by the Senate before Ms. Yellen’s term ends in February.

https://www.nytimes.com/2017/08/24/us/politics/if-janet-yellen-goes-the-feds-current-policy-may-go-with-her.html?