Former Fed Chair Janet Yellen: Far from retired, nowhere near done

The Fed is very close to having satisfied its maximum employment and price stability mandates and you can see that most people feel good about the economy and the Fed.

But it would concern me — President Trump’s comments about Chair Powell and about the Fed do concern me, because if that becomes concerted, I think it does have the impact, especially if conditions in the U.S. for any reason were to deteriorate, it could undermine confidence in the Fed. And I think that that would be a bad thing.

Ryssdal: Do you think the president has a grasp of macroeconomic policy?

Yellen: No, I do not.

Ryssdal: Tell me more.

Yellen: Well, I doubt that he would even be able to say that the Fed’s goals are maximum employment and price stability, which is the goals that Congress have assigned to the Fed. He’s made comments about the Fed having an exchange rate objective in order to support his trade plans, or possibly targeting the U.S. balance of trade. And, you know, I think comments like that shows a lack of understanding of the impact of the Fed on the economy, and appropriate policy goals.

The Fed Isn’t the Tax Cut’s Enemy

Officials are open to the possibility that the tax cut will raise the economy’s potential growth rate, although it isn’t their base case

conventional wisdom is that this is the wrong time for Republicans to cut taxes by $1.4 trillion over the next decade. The fiscal stimulus will overheat the economy and force the Federal Reserve to slow it down by raising interest rates more aggressively.

inflation is still too low, and that completely changes the equation: It suggests overheating is to be welcomed, not resisted.

officials are open to the possibility that the tax cut will raise the economy’s potential growth rate, which means faster growth wouldn’t necessarily lead to more inflation.

.. Ms. Yellen and her likely successor, Fed governor Jerome Powell, aren’t yet the party poopers many supply-side tax cut advocates feared.

.. [Larry Kudlow: ] The real test, he said, is how the Fed reacts if growth tops 3%

.. By 2020 Fed officials expect their benchmark federal-funds rate to reach 3.1%, which would be above the 2.8% they expect to prevail in a fully-employed economy growing normally

.. Ms. Yellen made it clear she didn’t agree with Mr. Trump and Treasury Secretary Steven Mnuchin that the tax cut would pay for itself, and warned it may be “taking what is already a significant [debt] problem and making it worse.”

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

Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying

Today’s conditions expose vulnerabilities that make a recession or market meltdown more likely

 If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.In other words, it would look a lot like the present.

.. Companies meanwhile have responded to slow, stable growth and low rates by borrowing heavily, often to buy back stock or pay dividends. Corporate debt as a share of economic output is at levels last seen just before the past two recessions.

.. Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.” Fair enough: crises as catastrophic as the last happen twice a century. But small crises are inevitable as risk migrates to financial players who haven’t drawn the attention of regulators.

..  in a world with permanently lower inflation and growth, businesses will struggle to earn their way out of debt

Beneath the Uneasy Peace Between Donald Trump and Janet Yellen

The president’s relationship with the Federal Reserve has so far been cordial, but that doesn’t mean Chairwoman Janet Yellen is likely to stay on

.. Their placid relationship reflects Mr. Cohn’s leading role. Ms. Yellen meets regularly with Mr. Cohn and Treasury Secretary Steven Mnuchin, who also spent much of his career at Goldman Sachs.

.. Mr. Cohn takes pride in convincing Mr. Trump of the economic benefits of respecting the Fed’s independence, including by not firing off verbal or Twitter attacks on the central bank, according to people who have discussed the issue with him.

.. Many Wall Street and Washington observers expect Mr. Trump to select his own candidate for the top job, possibly Mr. Cohn.

.. These concerns haven’t been aired publicly by the administration, in contrast to Mr. Trump’s comments during last year’s election, when he said Ms. Yellen should be “ashamed of herself” for keeping rates low.

Yellen’s Message: My Work Here Is (Mostly) Done

The economy will keep growing just enough to put more Americans back to work, but without overheating to generate excessive inflation. American workers will see gradual pay raises that keep compensation rising faster than inflation. Interest rates will rise gradually, while staying low by historical standards. And that’s all before accounting for any major stimulative policies that may emerge from the Trump administration and Congress.

.. She suggested no urgency toward a tightening of the money supply that might suggest a hair-trigger readiness to accelerate interest rate increases. Ms. Yellen evinced little fear that the Fed is behind the curve, suggesting that two more interest rate increases are on the way over the remainder of 2017.

Janet Yellen’s Uneasy New Role: Defending the Fed From Historic Political Pressure

Over two days, the Fed chairwoman spoke with five Republicans, some of whom she had never met privately since taking over at the central bank, according to her public calendar. She stuck to a script she had delivered many times, said a person familiar with the calls: The bill could allow politicians to interfere with Fed policy; academic studies show countries with independent central banks have lower inflation; the Fed is already audited.

 Ms. Yellen didn’t persuade them. Though the Senate voted not to move forward with the bill—a relief for the Fed—only one of the chamber’s 54 Republicans voted in the Fed’s favor.
..The person leading the institution isn’t a politician—she’s a macroeconomist who spent most of her career at the Fed and in academia. Yet the task ahead of her, now that Donald Trump is president, might require a different set of skills. The new president thrust Ms. Yellen and the Fed onto the national political stage by criticizing them sharply during the campaign, and his election raised expectations that GOP bills to rein in the central bank could become law.
The president has also said he would probably find a replacement when Ms. Yellen’s term is up in February 2018, which means he would likely nominate a successor by late summer, rendering her a lame duck.
..Ideas include requiring the Fed to establish a mathematical formula to guide interest-rate policy, limiting its emergency-lending powers and forcing the central bank to return billions of dollars banks paid to be members of the Fed system. The phenomenon is apparent outside the U.S., too, with central banks from Japan to the U.K. grappling with skepticism of their efforts to boost their economies.
..The financial crisis, however, battered the Fed’s credibility. Many lawmakers and some economists want more information about how the central bank operates and what it may do in the future.
..Though Mr. Trump hasn’t said whether he would support the measures, his campaign remarks—such as accusing Ms. Yellen of keeping rates low to help Democrats—suggest he has no qualms about criticizing Fed policy or its leadership, a departure from the recent tradition of presidents staying mum on such issues.
.. Former Chairman Alan Greenspan, who scheduled his own breakfasts with members of Congress, had extensive relationships in Washington when he became chairman and often operated as a one-man congressional-relations shop.
His successor, Ben Bernanke came from academia, but developed a rapport with members on both sides of the aisle during the crisis. Those relationships later helped him beat back legislative efforts to strip the Fed of its powers to supervise banks.
.. She has met two dozen times with members of Congress since November 2015, either hosting them for breakfast or lunch in a private dining room at the Fed or shuttling to meetings on Capitol Hill, in addition to logging more than a dozen phone calls.
..More typical is what happened when Congress considered tapping the Fed to help pay for federal highway programs. Ms. Yellen warned it could set a dangerous precedent. Congress took even more money from the Fed than initially proposed, including $19.3 billion from its capital account.