Fed may face unnerving shake-up under Trump presidency

New economic proposals could push inflation higher

WASHINGTON, Dec 2, (RTRS): Change at the Federal Reserve could come quickly with President-elect Donald Trump’s team pledging to promptly fill high-level central bank jobs and roll out a tax and fiscal plan that could rewrite policymakers’ core economic assumptions.

Fed officials already say their plan to gradually increase interest rates may need to be accelerated to accommodate the new administration’s economic proposals, which could push inflation higher.

The concerns for Fed Chair Janet Yellen are broader as she faces a 14-month window to preserve her legacy and try to ensure the central bank’s independence in the face of a possible four or more Trump appointees to its seven-member Board of Governors.

Yellen’s term as Fed chief expires in February 2018, and Trump is likely to name a successor in synch with his desire to cut financial regulation, lower corporate taxes, reorder fiscal policy, and possibly impose some of the constraints on the Fed that Republicans in Congress have long advocated.

Yellen, 70, a ranking Fed official for the past 12 years and the top US central banker since 2014, laid out a long list of concerns during recent questioning before Congress: that any fiscal boost not blow up the deficit and be tailored to improve growth and productivity; that the regulations crafted after the 2007-2009 financial crisis not be trashed; that the Fed not be hamstrung by policy rules or political pressure.

“There is clear evidence of better outcomes in countries where central banks can take the long view, are not subject to short-term political pressures,” Yellen said in her testimony. “Sometimes central banks need to do things that are not immediately popular.”

Fed officials would not comment on whether Trump and Yellen have spoken, or describe the contact so far between the central bank and the Republican businessman’s transition team. Trump transition officials could not be reached for comment.

It remains unclear how deep a stamp Trump wants to put on the Fed, or what he feels about issues like central bank independence that are fundamental to Yellen and her peers.

Trump’s sharp comments about Yellen during the presidential campaign, when he accused her of setting monetary policy to help Democrats, rattled Fed officials who felt he had crossed a line.

But it is not known whether he’ll be content to merely change personnel — Fed Vice-Chair Stanley Fischer’s term also runs out in 2018 — or whether he hopes to infuse the central bank with a different operating philosophy altogether.

Congressional Republicans are expected to push legislation forcing more oversight of the central bank, possibly tying it to a monetary policy rule that more mechanically sets rates. Among the candidates mentioned as Yellen’s NEW YORK, Dec 2, (RTRS): Top executives from large US drugmakers on Thursday discussed for the first time possible changes for the industry under President-elect Donald Trump, and issues that have damaged the reputation of their industry.

Since he was elected, Trump, who has said he wants to repeal Obamacare and reform Medicare and Medicaid, has not addressed the sharp drug price increases that dominated the Presidential campaign.

Pharma companies are breathing a sigh of relief, but Trump could be more critical of drugmakers and their price increases than the industry expects, Allergan Inc Chief Executive Brent Saunders said on Thursday.

Saunders, speaking at the annual Forbes Healthcare Summit in New York, predicted Trump could be a “more vicious tweeter” against the

possible replacement is Stanford University economics professor John Taylor, whose “Taylor Rule” is often used in analysis and as a reference point in debate over the usefulness of rules in general.

In his first comments after being named as Trump’s choice for Treasury secretary, Steven Mnuchin indicated in a Fox Business interview that the new administration’s plans could quickly alter the collegial and consensus-driven dynamic Yellen has tried to mold.

The plan is to move soon to fill two drug industry than his former Democratic rival Hillary Clinton had been during the campaign.

Clinton’s tweets committing to a crackdown on exorbitant drug price increases weighed heavily on pharmaceutical shares since her first tweet in September 2015. Pharma shares jumped in the days after Trump’s election as Clinton’s proposed price controls fell off the table.

Saunders said Americans are rightly angry about price increases, and the industry needs to police itself or face government repercussions.

“I worry today that the pharmaceutical industry has a very false sense of security because of the Trump administration and a Republican-controlled Congress,” Saunders said.

Regeneron Pharmaceuticals CEO Len Schleifer, speaking on a panel at the Forbes conference, said the

open board seats at the Fed, and appointing one of those as a vice-chair of supervision “will be a big priority,” said Mnuchin, a former Goldman Sachs partner and Hollywood financier.

Many analysts feel such a move could prompt the resignation of Fed Governor Daniel Tarullo ahead of the expiry of his term in 2022, giving Trump a fifth board seat to fill. A former Clinton administration economic advisor appointed to the Fed by President Barack Obama, Tarullo currently industry will be seen in a bad light as long as it maintains the common practice of taking twice yearly, often double-digit, price increases on widely-used medicines.

“We as an industry have used price increases to fill gaps in innovation,” he said.

“You can’t say ‘I set the price based on the value of the drug’ and then have these egregious price increases,” Schleifer said, adding that the value of a drug to society does not increase each year.

Pfizer Inc CEO Ian Read took exception to Schleifer’s characterization of the price hikes, arguing the cost of prescription drugs as a percentage of overall healthcare spending had not changed in two decades.

In an overhauled US healthcare plan under Trump, Read said he would like to see financial risk shift

handles regulatory issues but has never been formally named vice chair. He would not comment on his plans in a public appearance last month.

Financial markets, which had been spooked by Trump’s anti-trade comments during the campaign, so far appear to expect smooth sailing and a sober version of Trumpism.

The prospect of major tax reform has bolstered US stocks, especially in the financial sector where regulations are expected to be eased, and the dollar has rallied against major currencies. from insurers to providers, such as hospitals, with an emphasis on prevention and wellness.

“Give them the tools and the freedom and the incentive to manage that risk,” Read said.

Separately, Merck & Co CEO Ken Frazier said he thought one of Trump’s proposed healthcare reform policies — allowing the import of cheaper drugs from other countries — will not work. The US pays more than any other country for medicines, and current US law forbids importation of drugs from other countries that charge far less.

“I don’t think it’s going to be made possible,” said Frazier, during an interview on CNBC after an appearance at the conference. “Every time we’ve tried to do that no FDA commissioner has ever been willing to certify the safety of those drugs.”

Yet for the Fed, Trump’s victory brings a new and possibly unnerving sort of uncertainty.

The Fed has the equivalent of a university full of PhD economists who can employ sophisticated models to gauge how new tax or fiscal policies might change growth, inflation and unemployment.

What they can’t model is the fallout if a major trade agreement is summarily ripped up, or if Trump follows through on campaign threats to declare China a currency manipulator.