While Trump Grumbles About Fed, His Picks Exude Pragmatism
23 September 2018 - 3:54AM
Dow Jones News
By Nick Timiraos
President Trump's pique over the Federal Reserve's interest-rate
increases this summer stoked fears about a looming blowup between
the White House and the central bank. His nominees to the Fed's
board show his administration isn't spoiling for a fight.
The selections also illustrate how the man he named as Fed
chairman, Jerome Powell, has consolidated power in short order and
ahead of delicate policy decisions he could confront soon.
The primary way a president can influence Fed policy comes
through nominations to its seven-seat board of governors. Mr. Trump
has had the rare opportunity of filling six slots early in his
term. Meantime, the president -- in tweets, a television interview
and meetings with business leaders and donors -- has openly
expressed annoyance with the Fed's short-term rate increases.
His selections, however, have mostly been non-ideological,
pragmatic policy experts who are well regarded within the Fed
rather than central bank antagonists likely to push for a dramatic
course change.
The latest to fit this mold is former veteran Fed economist
Nellie Liang, Mr. Trump's surprise pick to fill the last of three
vacancies on the board.
"If the Trump administration wanted greater direct influence
over the Federal Reserve, nominating a well-respected former
Federal Reserve staff member would not be the way to achieve that
objective," said Lewis Alexander, chief U.S. economist at Nomura
Securities.
Mr. Trump's public Fed criticism, the first by a sitting
president since 1992, followed central bank officials' signaling
they plan to gradually raise rates in coming years to prevent the
economy from overheating. The risk of sustained attacks on the
central bank could rattle the markets if investors feared the Fed
might be pressured into leaving rates too low for too long, fueling
inflation. That isn't a problem right now.
Mr. Trump's selections shouldn't have caught anyone by surprise,
said Kevin Hassett, the chairman of the White House Council of
Economic Advisers. "President Trump has a simple instruction to the
team: that we find the best possible nominees," he said.
Mr. Trump's respect for the Fed's independence "is extremely
apparent in the caliber of his nominees," said Mr. Hassett.
"Everyone on the team in the White House is justly proud of what a
great team has been recruited to help run the Fed."
Three personnel decisions since Mr. Powell became chairman in
February, including Ms. Liang's nomination, bear his imprint.
Ms. Liang spent 31 years at the Fed until last year, including
her last seven overseeing the Fed's monitoring of risks to
financial stability, an area Mr. Powell has focused on.
Mr. Powell played a key role securing the nomination of Richard
Clarida as vice chairman in April. After the White House passed on
another Powell favorite -- John Williams -- for that job, the New
York Fed made him their next president. The moves brought two
widely respected monetary policy economists into his leadership
circle.
Peers on both sides of the aisle have cheered Ms. Liang's
appointment, in particular.
"Nellie is an excellent selection by the president. She combines
deep experience in crisis times and non-crisis times with
remarkable open-mindedness," said former Fed governor Kevin Warsh,
who worked in the George W. Bush administration and had been
interviewed by Mr. Trump to serve as Fed chairman.
The Fed holds a two-day policy meeting this week in which
officials are prepared to raise their benchmark rate to a range
between 2% and 2.25%.
While all 12 of the Fed's regional bank presidents participate,
just five of them have a vote at any meeting. The Washington-based
governors always vote, making them more powerful.
The current episode is in some ways the reverse of the 1980s.
Back then, President Reagan was reluctant to publicly criticize Fed
Chairman Paul Volcker, who had lifted the benchmark rate to 19% to
fight inflation in 1981. But the president's top advisers
frequently clashed with Mr. Volcker. They packed the board with
governors who outvoted him in 1986 to force a cut in the lending
rate the Fed charges banks.
Three of Mr. Trump's picks -- Messrs. Powell and Clarida as well
as Randal Quarles, the vice chairman for bank supervision -- have
won Senate confirmation. Two are pending in addition to Ms. Liang.
They are Kansas banking commissioner Michelle Bowman and Marvin
Goodfriend, a Carnegie Mellon University economist who is opposed
by Senate Democrats and Sen. Rand Paul (R., Ky.).
Having a board stocked with collegial policy hands will help Mr.
Powell navigate difficult decisions over how long to continue
raising rates and what to do if inflation remains under control but
asset bubbles inflate, as happened before recessions that began in
2001 and 2007.
He also may enjoy a wide base of support from Fed presidents who
joined the system when Mr. Powell, in his prior capacity as a
governor, served as the board's primary liaison with the reserve
banks.
Mr. Trump might still vent about interest-rate increases on
Twitter and television. But once his nominees are in place, there
will be little else he can do to change the place.
Mr. Powell, working with White House advisers, appears to have
dealt himself a strong hand.
(END) Dow Jones Newswires
September 22, 2018 13:39 ET (17:39 GMT)
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