Trump And Yellen: Besties?

Trump may well soften his opposition to low interest rates once he’s in the Oval Office

- Peter Coy

The Supreme Court isn’t the only institution President-elect Donald Trump could influence over the next four years. He could also reshape the Federal Reserve—the high court of money. There are already two vacancies on the Fed’s Board of Governors for him to fill next year. Two more seats, including that of Chair Janet Yellen, are likely to open up by the time his term is a year and a half old, giving him a majority of appointees on the seven-member board. He could also put his stamp on the central bank by signing legislation to force the Fed to publish a rate-setting rule and follow it.

Trump’s power to remake the Fed has to alarm the occupants of its headquarters on Constitution Avenue. As a candidate he delighted in bashing Yellen, saying she was keeping rates low to prop up the Democrats. He called her more political than Hillary Clinton. He said the Fed’s cheap money had inflated “a big, fat, ugly bubble” and, with some justification, that savers were “getting just absolutely creamed” by low rates.

But what Trump will do about the Fed once he gets in office is far from clear. He could certainly name Fed governors who would be more hawkish than Yellen and her board allies—more partial to raising interest rates to stave off inflation and keep asset bubbles from forming. It’s also possible, though, that he could revert to his roots as a real estate developer and favor low interest rates that encourage, or accommodate, faster economic growth. A turn to dovishness wouldn’t be surprising—it’s typical for incumbent presidents to want rates low for as long as they’re in office. There’s even talk that Trump could reappoint Yellen to another four year term when her current one ends on Feb. 3, 2018.