Trump Outlines Vision For Federal Reserve Board

Apr 14, 2017

This photo combo of file photos shows Republican presidential candidate Donald Trump, in New York, and Federal Reserve Chair Janet Yellen, in Washington.
Credit AP Photo

In an interview this week with the Wall Street Journal, President Donald Trump said the Obama-era Fed chairwoman, Janet Yellen, might remain. He also said he would appoint a community banker to the board. That Yellen could remain signals continuity in economic policy, but a community banker on the board would likely reduce regulations for banks and bring closer ties between the Fed and politicians.

"One of the tenets of central banking over the years has been independence. That independence is about to be tested like it has never never been tested before," says Cornelius Hurley, a professor of bank law at Boston University.

Because community bankers are in almost every congressional district in the country, their influence and politics go hand in hand. On top of that, Trump has available an unusually large number of appointments to the Federal Reserve, at least five of the seven Governors.

What’s so bad about having a Federal Reserve Board beholden to politicians?

"You look at central banks that are not independent, you always find higher inflation rates and more unstable money growth," says Jerry Lynch, a professor of economics at Purdue University.

There’s no indication, anyone Trump appoints would support this, but some worry about a worst case scenario that goes like this: You work all your life to save. Then, some politician comes along who wants to rev the economy in order to win an election. Suddenly, inflation grows and your nest egg is worthless.