Janet Yellen is once again the frontrunner for the next Fed chair—for now

"America First"
"America First"

Who will Donald Trump nominate to lead the world’s most important central bank? Janet Yellen’s term as US Federal Reserve chair is up in February, and president Trump has waffled on whether he will reappoint her, from insisting she is tainted by her association as an Obama nomination, to suggesting that, as a “low-interest rate person,” he approves of her dovishness. Last week, when probed on the issue, Trump said, “I like her, and I respect her.”

In recent days, Yellen has been back in the lead in prediction markets—just—with political gamblers making wagers on the PredictIt site that put a 25% probability on her remaining in her post as Fed chair. (Here is how betting at PredictIt works.)

Gary Cohn, a Goldman Sachs veteran who currently serves as head of Trump’s National Economic Council, once looked like he had the nomination sewn up. But after denouncing Trump’s response to the white-supremacist protest in Charlottesville last month, he is reportedly no longer in the president’s good graces.

Still, some Trump aides want a different leader at the Fed, one whose policy isn’t quite as expansive as under Yellen and her predecessor, Ben Bernanke. (Under their tenures, the Fed pumped more than $4 trillion into the economy by buying bonds.) The other contenders fit the bill. Kevin Warsh, a former Fed governor and financier, has publicly criticized the Fed’s “make-it-up-as-you-go-along approach” (paywall). John Taylor, a Stanford professor, is best known for inventing a monetary policy formula—the Taylor Rule—that takes discretion out of setting interest rates.

Yellen, meanwhile, has spoken out against financial deregulation (paywall), a hallmark of Trump’s economic policy agenda. But like every other inscrutable Fed chair, she hasn’t been drawn on any specific comments about the White House administration. A few months ago she had breakfast with Ivanka Trump, who tweeted approvingly of a speech she gave—an important sign of approval among the first family.

For what it’s worth, not reappointing Yellen as chair would break the tradition of presidents renominating the Fed leader in charge when they assume office. Obama reappointed Ben Bernanke, a George W. Bush nominee. Bill Clinton kept Alan Greenspan, a Ronald Reagan nominee. Reagan, likewise, renominated Paul Volcker, Jimmy Carter’s choice for Fed chair.

The next Fed chair will take on the massive, unprecedented task of rebalancing the central bank’s $4.5-trillion balance sheet. Keeping Yellen on as Fed chair would give Trump a scapegoat if the unwinding process doesn’t go well. If he nominates a new Fed chair, he will find it harder to avoid responsibility for any Fed-related economic turmoil.

There are currently three vacancies on the Fed’s seven-member board of governors, with another opening up next month after vice chair Stanley Fischer’s unexpected resignation. Regardless of whether he keeps Yellen on or not, Trump is able to nominate a majority of members to the Fed’s top decision-making body who share his vision for steering the economy.

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