{"id":44281,"date":"2017-10-26T10:06:55","date_gmt":"2017-10-26T14:06:55","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=44281"},"modified":"2017-10-26T10:06:55","modified_gmt":"2017-10-26T14:06:55","slug":"janet-yellens-final-exam","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2017\/10\/janet-yellens-final-exam\/","title":{"rendered":"Janet Yellen's Final Exam"},"content":{"rendered":"

\"George<\/p>\n


<\/p>\n

Although he professes to \u201creally like her a lot,\u201d President Trump appears to have made up his mind that that the next chair of the Federal Reserve won\u2019t be the incumbent of the past four years, Janet Yellen. <\/p>\n

On Tuesday, according to media reports, the president asked Republican senators for a show of hands on whether they favored current Fed governor Jerome H. Powell or John B. Taylor, the Stanford University economics professor and frequent Fed critic. Results of the informal vote weren\u2019t disclosed. On the same day, the New York Times ran an article comparing the \u201cfinalists\u201d for the Fed chair position, mentioning only Powell and Taylor, even though the White House has said Trump is considering three additional candidates, including Yellen. <\/p>\n

So it now looks like it\u2019s a two-man race between Powell and Taylor. Trump has promised to make an announcement any day, at least before his trip to Asia at the end of next week.
\nRegardless of who he chooses, it\u2019s certainly an appropriate time to review Yellen\u2019s tenure as Fed chair, either as a historical exercise or as an indicator of what we can expect for the next four years in the event she is reappointed. Let\u2019s look at some of the main points. <\/p>\n

Transparency:<\/h2>\n

Although the Fed historically has gotten a lot of grief for deliberating in secrecy, I don\u2019t think Yellen \u2013 or her successor, Ben Bernanke, with the one exception of the \u201cTaper Tantrum\u201d \u2013 can be accused of failing to give the public and the financial markets a long head\u2019s up on what they expect to be doing regarding monetary policy and interest rates. <\/p>\n

Decisiveness:<\/h2>\n

If anything, the one thing the Yellen Fed can be faulted on is failing to act after it indicated or implied that it would. (Note that the Fed never actually \u201csays\u201d it\u2019s going to do something until it actually does so). Over the past four years, the Fed has repeatedly backed off from or delayed an action it had telegraphed earlier, whether it\u2019s due to \u201cdata dependency\u201d when U.S. economic indicators failed to come in as expected, or some external \u201ccrisis\u201d like the U.K. Brexit vote or the drop in the Chinese stock market last year.<\/p>\n

Cluelessness:<\/h2>\n

Speaking of which, I have been astonished by the number of times the Fed has found itself blindsided by the release of an economic statistic \u2013 jobs, usually \u2013 that has gone against what it was expecting and forced it to back off from making a decisive move, such as raising the federal funds rate. Is it really possible that the Fed doesn\u2019t know well in advance what the Labor Department or some other government agency is going to report? And even if these agencies don\u2019t actually share their data with the supposedly \u201cindependent\u201d Fed, certainly the central bank\u2019s army of professional economists and research analysts should know what\u2019s coming. Too often it appears as if it doesn\u2019t.<\/p>\n

Independence:<\/h2>\n

If I had a billion dollars for every time I heard that the Fed is \u201cindependent\u201d or \u201cnot political\u201d I could balance the federal budget tomorrow. In fact, Yellen, a Democrat, bent over backward to accommodate the failed economic policies of the Obama Administration, refusing to raise interest rates in order to give the deliberately-suppressed economy any artificial boost that it could. I don\u2019t necessarily think it\u2019s wrong to do that, but let\u2019s not pretend that the Fed chair doesn\u2019t do the bidding of the president or party who appointed her (or him). After all, they supposedly believe in the same things. Otherwise, they wouldn\u2019t have been nominated in the first place.<\/p>\n

Bank Regulation:<\/h2>\n

One of the main things that may count against Yellen\u2019s reappointment is that she may not be entirely on board with the Trump Administration\u2019s agenda to deregulate the financial services industry, chiefly by dismantling parts of the Dodd-Frank law. In her most recent comments on the subject, Yellen indicated that she is open to making some changes, particularly as they apply to smaller, regional banks that played little or no part in causing the financial crisis. Whether that\u2019s enough to win her another term, I don\u2019t know.<\/p>\n

However, the Fed has been extremely slow in coming down on the most \u201cegregious\u201d (Yellen\u2019s word) example in memory of a major bank preying on its customers. I\u2019m talking of course about Wells Fargo. In one of my recent columns I called for the Fed to throw the book \u2013 and a minimum fine of $1 billion\u2013 at the bank for its many scandals that have been disclosed over the past year or so. <\/p>\n

Not only has the Fed yet to penalize Wells, but it's also hard to believe that as the bank\u2019s principal regulator it didn\u2019t have at least an inkling of the bank\u2019s bad behavior and sales practices, which apparently stretch back more than a decade. How could it not have known? And if it did, it\u2019s reprehensible and inexplicable that it allowed it to continue for so long.<\/p>\n

Inflation:<\/h2>\n

As I\u2019ve said before in this space, I\u2019ve been mystified by the Fed\u2019s concern that inflation is too low, which it uses as an excuse not to normalize monetary policy so long after the financial crisis ended. Fixating on inflation that is too low \u2013 as opposed to too high \u2013 is simply an academic exercise and just another excuse not to act. There will be plenty of inflation in the future the longer the Fed fails to raise rates and unwind its massive balance sheet.<\/p>\n

Market Stability:<\/h2>\n

Last but not least, Yellen will be given credit for keeping the eight-year-old stock market rally alive through the Fed\u2019s easy-money policies. Whether it\u2019s the Fed\u2019s job to keep stock prices high is another matter, but probably most investors don\u2019t care about that \u2013 they only care about making money. <\/p>\n

On balance, then, I would give Yellen a passing grade, but she could have done a whole lot better. I\u2019m afraid that\u2019s not good enough to warrant a second term. <\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Although he professes to \u201creally like her a lot,\u201d President Trump appears to have made up his mind that that the next chair of the Federal Reserve won\u2019t be the incumbent of the past four years, Janet Yellen. On Tuesday, according to media reports, the president asked Republican senators for a show of hands on […]<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[9157,7308,5378,8771,5442],"class_list":["post-44281","post","type-post","status-publish","format-standard","hentry","category-ino-com-contributors","tag-fed-decision","tag-federal-reserve-chair-janet-yellen","tag-new-fed-chair","tag-president-donald-trump","tag-the-federal-reserve"],"yoast_head":"\nJanet Yellen's Final Exam - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"Although he professes to \u201creally like her a lot,\u201d President Trump appears to have made up his mind that that the next chair will not be Janet Yellen.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2017\/10\/janet-yellens-final-exam\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Janet Yellen's Final Exam - 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