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.

Donald Trump and Janet Yellen Look to Be on a Collision Course

The president-elect and his advisers have often spoken of seeking stronger economic growth than the United States has experienced the last several years, perhaps seeking 3.5 percent to 4 percent instead of the sub-2 percent growth that has been the standard since 2009. A white paper by advisers to Mr. Trump released in the fall assessed the view that this lower growth rate reflected demographics and that it amounted to a “new normal,” and declared it “incomplete — and unnecessarily defeatist.”

That view is at odds with both Ms. Yellen’s comments Wednesday and longer-term economic projects that Fed officials have released. For example, the median Fed policy maker viewed the economy’s long-term rate of G.D.P. growth as only 1.8 percent a year, very much in the ballpark that Trump advisers would view as unnecessarily defeatist.

.. It’s possible that what people in Mr. Trump’s orbit view as a desirable boom will look to Ms. Yellen and her colleagues as overheating, and prompt equal and opposite interest rate increases.

.. There are a couple of potential twists in this story. The first would involve potential Trump appointments to the Fed; the second could involve big moves in the dollar.

.. Economists believe a key element of a corporate income tax overhaul advanced by House Republicans, known as a border adjustment tax, would have the effect of creating a huge rally in the value of the dollar compared with other major currencies, perhaps 20 percent or more.

.. it is looking like a distinct possibility that Ms. Yellen could wake up one morning in the year ahead to early-morning tweets directed her way, originating from 1600 Pennsylvania Avenue.