President Trump is approaching a series of appointments to the Federal Reserve, decisions that will shape the course of the U.S. economy, even long after he leaves office.
His biggest decision by far will be whom to appoint to head the Federal Reserve when Janet L. Yellen's term as chair expires in February.
In an interview with the Wall Street Journal on Wednesday, Trump said he has not ruled out reappointing Yellen, a shift from last May when Trump said he “would most likely replace her.”
Treasury Secretary Steven Mnuchin told the Wall Street Journal in the same interview that Trump is also “very close” to nominating a vice chairman to the Federal Reserve Board, a powerful post that oversees banks and determines how regulation gets put into action. Trump is also close to filling another seat for a community banker, Mnuchin said.
The board that heads the Federal Reserve is currently operating with just a portion of its full staff, with only four of the seven posts currently filled.
The Trump administration will have the chance to significantly reshape the character of the central bank through these appointments, as well as the selection of a new chair and vice chair early next year. Those decisions will help determine how banks are regulated and interest rates are set — choices that will strongly influence the course of the economy.
Pinning down Trump appointments has been notoriously difficult, and decisions about the Fed tend to be particularly secretive, given their potential to move markets. But people who track the issues closely are discussing several names for the vice chair of supervision post: Randy Quarles, a former private equity investor and Undersecretary of the Treasury in the George W. Bush administration, Thomas Vartanian, a lawyer who has represented banks and counseled bank regulators, and Hal Scott, a professor international financial systems at Harvard Law School.
Quarles and Vartanian did not respond to request for comment, while Scott declined to discuss the vice chair appointment. The White House said it does not comment on pending personnel decisions.
The biggest outstanding question is who will occupy the chair of the Federal Reserve. While Trump’s comments Wednesday were not a ringing endorsement of Yellen — he said that he liked and respected her and that she was “not toast” — they were a contrast with his statements during the election. On the campaign trail, Trump said Yellen should be “ashamed of herself” for keeping interest rates low and featured her image in a campaign ad that criticized “those who control the levers of power in Washington.”
Yet some Fed watchers were not surprised by the shift.
“It’s always been the deep irony: the Federal Reserve Chair appointment that would most reliably deliver a low path for policy rates and be market friendly was Janet Yellen, and the president just admitted that,” said Vincent Reinhart, chief economist for Standish Mellon who formerly worked at the Fed.
Higher interest rates help to fight inflation, but they also typically weigh on growth. Trump came into office with ambitious goals for boosting the growth of the economy, and to get near its stated goal of growing the economy by 3 percent annually — an ambitious target that would become even more difficult should the Federal Reserve quickly raise interest rates.
“I think they would realize that anyone else would have to raise rates faster and farther than Yellen to establish his or her anti-inflation backbone. You can see how it would be to their advantage to have a dovish Fed chair,” said David Wessel, a senior fellow in economic studies at the Brookings Institution. “On the other hand, the politics are pretty dicey. She’s not very popular with Republicans, so it would take a lot of political capital to get her through the Senate.”
Even if Trump doesn’t end up choosing Yellen, his recent praise is already changing the popular conception of his ideal Fed chair, said Michael Feroli, chief economist at J.P. Morgan. Some widely discussed candidates, like economist John Taylor or former Federal Reserve governor Kevin Warsh, are thought to be more prone to raising interest rates than Yellen would be.
“I think this suggests that’s not the right tree to be barking up,” Feroli said.
While a potential reappointment remains a long way off — Yellen’s term as chair does not expire until Feb. 3 — some Fed watchers say there are good reasons she could be tempted to stay.
“It is attractive to have been nominated by presidents of two different parties,” said Reinhart. That was the case for the past three Fed chairs, Ben Bernanke, Alan Greenspan and Paul Volcker. “That is a club you’d probably want to be in.”
On the other hand, the job is a grueling one — and it remains to be seen who Yellen’s new colleagues might be.
“What some of us might be worried about, and I’m not alone on this, is three rather political appointees being put in there to fill the three vacancies, making her life rather uncomfortable,” said Alan Blinder, a Princeton University economist who formerly served as the vice chair of the Fed’s Board of Governors.