Favourites for top Fed job in conflict with Trump ideals
Front-runners for role of chairman at the Federal Reserve slate president’s speeches and policies
THE race to become the next chairman of the Federal Reserve is in turmoil as the two front-runners – Janet Yellen, current chairman, and Gary Cohn, a top White House adviser – both hit out at key speeches and policies of Donald Trump.
Ms Yellen vigorously defended the banking regulations put in place since the financial crisis, arguing in her speech at the Jackson Hole conference of central bankers that the regime had made the US safer and had little negative impact on lending levels or economic growth. This conflicts directly with president Trump’s pledges to slash financial regulation.
“The events of the crisis demanded action, needed reforms were implemented, and these reforms have made the system safer,” said Ms Yellen, whose term at the US central bank comes up for renewal in February.
And she appeared critical of those who want to change the system now: “Already, for some, memories of this experience may be fading – memories of just how costly the financial crisis was and of why certain steps were taken in response.
“Now – a decade from the onset of the crisis and nearly seven years since the passage of the Dodd-frank Act and international agreement on the key banking reforms – a new question is being asked: have reforms gone too far, resulting in a financial system that is too burdened to support prudent risktaking and economic growth?”
This reflects the president’s concerns, but her answer was an emphatic no. “The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth,” Ms Yellen said, though noting that some reforms have only come in recently, and few of the new systems have been tested by a severe crisis.
Instead of unwinding the reforms, she proposed tweaks to the regulations where there were problems.
Her defence of financial regulation was echoed by Mario Draghi, president of the European Central Bank, who speaking later at Jackson Hole said that any reversal would call into question whether the lessons of the crisis had indeed been learnt. He also warned that free trade was needed to raise growth.
Meanwhile, Mr Cohn, who is considered the leading candidate to replace Ms Yellen, criticised the president’s response to the white supremacist and neo-nazi rally in Charlottesville.
“This administration can and must do better in consistently and unequivocally condemning these groups and do everything we can to heal the deep divisions that exist in our communities,” Mr Cohn told the Financial Times.
“I have come under enormous pressure both to resign and to remain in my current position.”
Mr Cohn added that his own ethnicity reinforced his determination to stay in the job. “As a Jewish American, I will not allow neo-nazis ranting ‘Jews will not replace us’ to cause this Jew to leave his job,” he said.
“As a patriotic American, I am reluc- tant to leave my post... because I feel a duty to fulfil my commitment to work on behalf of the American people. But I also feel compelled to voice my distress over the events of the last two weeks.”
Other potential candidates for the job include John Taylor, a Stanford professor who favours a rule-based system of setting interest rates, as well as Kevin Warsh, former Fed governor, and Glenn Hubbard, a Columbia professor who was the top economic adviser to president George W Bush.