Due to a confluence of resignations and openings, the president could remake the central bank in just a year or two. That was never supposed to happen.
Fed governors have 14-year terms—only judges serve for longer—and they’re carefully staggered so that one governorship expires every two years. That’s supposed to ensure that each presidential term, the president can nominate two governors, insulating the central bank from political pressures, so that no administration would have too much influence over monetary policy.
But since its inception in 1935, this system has almost never worked. Governors have almost never stuck around for the fully 14 years, and over the past few decades, they’ve spent fewer and fewer years in office. The average Fed governor appointed in the 1950s served more than 10 years. Since 2000, that has dropped to just five. The last person to stay for a full 14 years was Alan Greenspan, nominated in 1987 by President Ronald Reagan.
Why are Fed governors leaving sooner than their predecessors? The simplest answer, experts said, is money. As members of the most powerful financial institutions they’re sought-after by hedge funds, banks, and other financial institutions where they can make far more money than they did on the board. Fed board members make around $200,000 each year, far less than they can make at a private firm—and even less than the presidents of the regional Federal Reserve banks.
“How much the person can earn in the private market is rising and rising and rising,” said Blinder, who said that his time on the Fed board in the mid-1990s hurt his finances. “I don’t want to plead poverty and I’m not poor today, but my net worth was dwindling every year—and unless you are a very rich person, you can’t let that go on forever.”
.. Recently, partisan infighting has begun to infect the process as well. After Republicans took control of the Senate in 2014, they refused to confirm Obama’s two nominees for open Fed governor spots.
In that sense, Senate Banking Committee Chair Richard Shelby is partially the reason why Trump has such an opportunity to remake the central bank today: He refused to schedule a committee vote on two open spots that Trump now gets to fill.
.. The 14-year clock doesn’t reset when a governor resigns, so multiple people can hold one “term.” In fact, Quarles is the fourth person to hold this seat during the single 14-year governorship—and the term ends at the end of January. In other words, Quarles’ appointment expires just a few months after he was confirmed. “That’s ridiculous,” Blinder said.
.. Conti-Brown argued that Quarles’ short term is not just an extra burden for Congress but also is a threat to the Fed’s independence. If Quarles does not act as Trump wants, he worried, Trump could just withdraw his nomination. In other words, until he’s confirmed for another term, Quarles is effectively serving at the pleasure of the president.
.. The Trump administration could have instead nominated Quarles for one of the other open governorships, which don’t expire for multiple years. Conti-Brown said there’s no legal explanation for why Trump chose to fill the short-term opening while leaving the long-term seats unfilled.
.. One simple way to fix these problems with Fed governance is to raise the pay for Fed governors, not necessarily to be competitive with private sector salaries but to be at least competitive with the presidents of regional Fed banks, who typically earn $300,000 to $400,000 annually.
.. Each new governor’s term should start fresh, so that their term never expires soon after they’re confirmed. Blinder, whose term was up just 18 months after he was confirmed, said that he would’ve stuck around longer if his term had started fresh.
Mnuchin Gets His Man
Steven Mnuchin. The Treasury Secretary lobbied hard for Mr. Powell on grounds that he was more open to Administration influence than the other leading candidates. This may be unfair to Mr. Powell, but it does raise questions about Mr. Powell’s independence and capacity for the job.
.. He has few enemies, but he has left barely a policy footprint. His speeches are notable for endorsing whatever official Fed policy was at the time. He’s never dissented at the Open Market Committee (FOMC), which can be seen as loyalty to the chairman or a lack of personal conviction. This is especially notable in a period when other governors and regional bank presidents opine on everything... This suggests that Mr. Powell’s views reflect those of the monetary status quo under current Chair Janet Yellen, and perhaps this is what Messrs. Mnuchin and Trump want. But in that case Mr. Trump should have continued with Ms. Yellen, who at least has been in charge. Mr. Powell will have to establish his authority with the other FOMC Members and the Fed staff, which is dominated by economists with a monetary policy model that requires a firm hand to supersede.One certainty is that the next four years will be more volatile, especially if growth accelerates, interest rates rise and as the Fed shrinks its balance sheet. Mr. Powell has some experience in domestic financial markets but not in international currency and emerging markets. The combination of Mr. Powell at the Fed and Mr. Mnuchin at Treasury isn’t exactly the financial equivalent of SEAL Team 6.
Upstairs at home, with the TV on, Trump fumes over Russia indictments
But the president’s celebration was short-lived. A few minutes later, court documents were unsealed showing that George Papadopoulos, an unpaid foreign policy adviser on Trump’s campaign, pleaded guilty to making a false statement to the FBI about his efforts to broker a relationship between Trump and Russian President Vladimir Putin. The case provides the clearest evidence yet of links between Trump’s campaign and Russian officials.
.. But Trump’s anger Monday was visible to those who interacted with him, and the mood in the corridors of the White House was one of weariness and fear of the unknown.“The walls are closing in,” said one senior Republican in close contact with top staffers who spoke on the condition of anonymity to speak candidly. “Everyone is freaking out.”Trump is also increasingly agitated by the expansion of Mueller’s probe into financial issues beyond the 2016 campaign and about the potential damage to him and his family
.. Trump and his aides were frustrated that, yet again, Russia steamrolled the start of a carefully planned week of policy news. Trump is preparing to nominate a new chairman of the Federal Reserve and is scheduled to depart Friday for a high-stakes, 12-day trip across Asia, and House Republicans are planning to unveil their tax overhaul bill.
.. Away from the podium, Trump staffers fretted privately over whether Manafort or Gates might share with Mueller’s team damaging information about other colleagues. They expressed concern in particular about Gates because he has a young family, may be more stretched financially than Manafort, and continued to be involved in Trump’s political operation and had access to the White House, including attending West Wing meetings after Trump was sworn in.
.. Some White House advisers are unhappy with Thomas J. Barrack Jr., Trump’s longtime friend and chair of his inauguration, whom they hold responsible for keeping Gates in the Trump orbit long after Manafort resigned as campaign chairman in August 2016
.. The president’s inner circle on Russia matters has tightened in recent months. In addition to his lawyers, Trump has been talking mostly with Kelly and members of his family, including Melania, as well as daughter Ivanka and son-in-law Jared Kushner, both senior White House advisers. Trump also leans on two senior aides, counselor Kellyanne Conway and communications director Hope Hicks, as well as some outside friends for advice.
.. On Capitol Hill, meanwhile, some of Trump’s allies are privately revving up their own version of a counterattack against Mueller. Several top Republican legislators plan to raise questions in the coming days about the FBI’s handling of a “dossier” detailing alleged ties between Trump and Russian interests. They intend to argue that Mueller’s team has become overly reliant on a document that was funded in part by Democrats, according to two people involved in the discussions. Mueller does not appear to have relied on the dossier for the cases revealed on Monday, however.
.. When the first pair of indictments came naming Manafort and Gates, there was palpable relief inside the West Wing. The 31-page document did not name Trump, nor did it address any possible collusion between Russia and the president’s campaign.
.. Moreover, aides were simply happy that the initial batch of indictments did not include Michael Flynn
.. Flynn had been intimately involved in both the campaign and the early days of the administration, and a Flynn indictment, most staff believed, would have been far more damaging.
.. Michael Caputo, a former campaign adviser who Trump praised on Twitter Monday morning for his appearance on Fox News Channel’s “Fox & Friends,” later called the indictments “one big, huge fail.”
Who Will Be Trump’s Pick to Lead the Fed? We Asked Experts to Rate the Odds
Ms. Yellen has a possibility of being renominated, according to this consensus, but it is only 22 percent; experts think that Kevin Warsh, a former Fed governor with deep Republican ties, has a slightly better chance at 23 percent.
.. The case for renominating Ms. Yellen is straightforward.
She has presided over four years of steady economic expansion and rising financial markets. She moved cautiously toward raising interest rates even though the economy seemed to be approaching full employment. By contrast, some more conservative contenders for the job have indicated they want to raise rates more quickly, which could endanger the economy as President Trump approaches midterm elections in 2018 and a potential re-election battle in 2020.
.. Moreover, as President Trump dabbles in making deals with Democrats, reappointing Ms. Yellen could serve as an expression of good faith to Democratic senators. As administration officials focus on tax legislation and other priorities on Capitol Hill, it might be helpful to them to nominate someone who might sail through confirmation, rather than demand a bruising, time-consuming battle.
.. The case against Ms. Yellen is similarly straightforward: She is a liberal economist in a government dominated by conservatives. She is a cerebral academic serving during the presidency of a bombastic businessman. And she is a staunch defender of the work the Fed and other bank regulators have done to try to limit risk in the financial system — including in a high-profile speech last month — amid an administration focused on deregulation.
Kevin Warsh: well connected, but with baggage
He has a law degree, but no advanced degree in economics.
.. Mr. Warsh has been a skeptic of the Fed’s efforts to boost the economy through quantitative easing and has advocated raising interest rates more quickly. He also has a regulatory philosophy more in line with the administration’s.
.. Mr. Warsh’s father-in-law is Ronald Lauder, of the Estée Lauder cosmetics fortune, a major Republican donor with longstanding ties to Mr. Trump.
.. If Mr. Warsh is nominated, expect significant blowback during the confirmation process from Democrats, who are likely to accuse the 47-year-old Mr. Warsh of being underqualified, of being responsible for the 2008 bank bailouts and inclined to regulate banks too lightly now, and of being too overtly political for the traditionally nonpartisan Fed chairmanship.
.. Democrats would be eager to criticize the administration for naming a recent top executive at Goldman Sachs to be the nation’s most powerful financial regulator. Some populist Republicans might join them... Foremost among them are several of the names we would probably be hearing about if a conventional Republican president were in the White House.. John B. Taylor is a respected economist at Stanford who worked in the George W. Bush administration and has been an influential voice among congressional Republicans who want to see the Fed bound by stricter rules governing its actions.Glenn Hubbard was a top economic adviser to Mr. Bush who is dean of Columbia Business School.
Larry Lindsey was another top adviser to Mr. Bush and a former Fed governor with an economics doctorate from Harvard.
.. Their doctorates and affiliations with top universities may actually be downsides in an administration that has shown disdain for academic expertise.
.. other names has emerged in various reports, including the F.D.I.C. vice chairman Thomas Hoenig and John Allison