Recent reports indicate that President Trump will not re-appoint Janet Yellen as the chair of the Federal Reserve’s Board of Governors. Instead, the reports indicate that he will appoint a current member of the board, Jerome Powell.
Choosing to pass over Yellen is an obvious mistake. Yellen is a world-recognized expert in macroeconomics and has enormous experience as a policymaker. Her performance as Fed chair has been widely and correctly praised. She takes the Fed’s mandate to maximize employment seriously and is data-driven. To be clear, I think she’s made a misstep or two in specific interest rate decisions, but with Yellen, those arguing with economic data have a real chance to be heard. Her recent speech at the Federal Reserve conference in Jackson Hole, Wyoming, also provided an admirable signal that she continued to take the Fed’s role as chief financial-sector watchdog seriously. This commitment to the Fed’s full employment mandate and its role as regulator of finance is exactly what we should want from a Fed chair. Replacing her in this role is, simply, a dumb mistake.
Jerome Powell has served seriously and well as a member of the board in recent years. He has been a consistent defender of the Yellen-charted path of the Fed. He is substantially better than the other non-Yellen candidates floated for the job.
But on the downside, Powell is a lawyer, not an economist (this is not a generic criticism—stay with me). In recent years, he has (correctly) followed the path of Yellen in making monetary policy decisions. If the Trump reshaping of the BOG that is under way surrounds Powell with less-wise voices, one worries that he could be swayed into charting a different path.
There is, however, one way to ensure that at least one wise voice stays on the board advising Powell: Yellen should stay on as a member even as she is no longer chair. Her appointment to the wider board does not expire until 2024. Having a former chair stay on as a board member is not unprecedented—Marriner Eccles (whom the Fed’s building in D.C. is named after)—did this in the 1940s. And the stakes are high enough to take such an unusual step. The Fed is a uniquely important economic policymaking institution. It has substantial independent power from Congress and the president. This means it can be a welcome voice of good sense at a time when our president shows no good sense at all and the Republican-controlled Congress has shown no interest in pursuing policies that would actually help working Americans. The real influence that President Trump and Congress have over the Fed is in who staffs it. If Yellen leaves after losing the chair position, this gives them more power to shape the Fed. Whoever they pick will be a worse choice than Janet Yellen.
This is asking a lot of Janet Yellen. She is likely to lose a job she has done extraordinarily well for no good reason at all. Trump’s decision is likely driven by a mix of sexism and hyper-partisanship—Powell is a Republican, having served as an undersecretary of the Treasury under the George H.W. Bush administration. But her continued presence as a key decision-maker at the Fed would be a huge win for smart economic policymaking. She would, in short, be doing America’s working families a big favor. If she does decide to stay on after losing her chair position, we should all thank her.