Janet Yellen “Not Tall Enough”

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So said Donald Trump on several occasions in connection with possibly appointing her as Fed Chair, according to an article in today's Washington Post by Philip Rucker, John Dawsey, and Damian Paletta.  This article, along with several others, mostly covered the 20 minute interview these three had with Trump in the Oval Office.  Most of the news was was expected: on MbS still "maybe he did and maybe he didn't" on his role in the Khashoggi murder; "i don't see it" regarding evidence of a human role in global warming presented in the recently released climate change report, and California forest fires still due to poor forest management (with Interior Sec under investigation Ryan Zinke weighing in on that one about the importance of good forest management).  No, the top story was about the economy.

So Trump is blaming GM's impending layoff of 15,000 workers on the Fed raising interest rates, no role for his steel tariffs.  Janet Yellen should probably grateful she is not in the firing line.  It is Jerome (Jay) Powell who is, with Trump declaring "So far, I'm not even a little bit happy with my selection of Jay.  Not even a little bit. And I'm not blaming anybody, but I'm just telling you I think that the fed is way off-base with what they are doing."

Now arguably the Fed is being too vigorous about raising interest rates, and they may well slow down or even halt this if the rumblings of growth slowing become louder.  That said, if Yellen had been reappointed probably we would have seen interest rate increases  this year, if possibly maybe not quite as rapidly as we have seen (or would have with some hawk outsider many Congressional Republicans were pushing like Jon Taylor).  But the Fed is much more of a group operation than many realize, especially given that the Chairs for quite some time have sought more or less consensus decisions, even as they are often scattered dissidents making public noises.  And this consensus has a strong element coming from the staff and their models, with all of this building in a lot of momentum.  Once the Fed gets itself into doing something, like deciding on the string of interest rates they have been doing, it is hard to undo that.

While I am not enthusiastic about it, I do see one reason for some interest rate increases.  It is the matter of looking ahead to the next recession: if interest rates are not up at least somewhat, it will be hard to cut them much to stimulate the economy when it goes down again.  Obviously the problem is avoiding having those increases pushing the economy into that, although it may be that the zero lower bound is not the limit anymore we have thought it was in the past, with many nations running negative nominal rates for extended periods of time.  OTOH, Trump himself is at least partly responsible for rising interest rates, especially the longer term ones the Fed has less control over, thanks to his exploding budget deficit.

So what about this report about Yellen?  Apparently this was  not a matter that came up in the interview specifically, but near the end of the lead article, Rucker, Dawsey, and Paletta wrote the following, which I shall simply quote and end without further comment.

"Trump considered reappointing Yellen, and she impressed him generally during an interview, according to people briefed on their encounter.  But advisers steered him away from renominating her, telling him that he should have his own person in the job.

The president also appeared hung up on Yellen's height.  He told aides on the National Economic Council on several occasions that the 5-foot-3-inch economist was not tall enough to lead the central bank, quizzing them on whether they agreed, current and former officials said."

Barkley Rosser

2018-11-29