Trump Considered Keeping Yellen at Fed, Until Mnuchin Spoke Up

EghtesadOnline: Jerome Powell wasn’t a lock to be President Donald Trump’s pick to lead the Federal Reserve.

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04 November 2017

As Trump watched the stock market reach new highs day after day since his election and claimed personal credit for the strength of the U.S. economy, he kept coming back to the idea of renominating the woman most responsible, people close to him said: Fed Chair Janet Yellen.

Then his Treasury secretary got his ear.

According to Bloomberg, Steven Mnuchin wielded outsized influence as Trump deliberated on the Fed, people familiar with the matter said, and Mnuchin favored Powell. His argument bested that of Vice President Mike Pence, who urged Trump to make a more dramatic change of direction at the Fed by nominating Stanford University economist John Taylor, a favorite of conservatives across Washington.

Taylor, too, got a serious look from Trump, these people said. But in the end, Trump decided that Powell had the best judgment and collective experience of the five people he considered for the Fed job, and he is the person the president is most comfortable with, according to four White House officials who briefed reporters before Trump’s announcement on condition of anonymity.

“Jay will bring extensive private-sector experience and real-world perspective to our government,” Trump said Thursday in the White House Rose Garden. “As a result, he understands what it takes for our economy to grow. And just as importantly, he understands what truly drives American success.”

Mnuchin preferred Powell because his selection wouldn’t disrupt financial markets while still allowing Trump to put his personal stamp on the Fed, a person familiar with the matter said. The Treasury secretary regarded the Fed governor as a safe pair of hands who would raise interest rates at a pace that wouldn’t scupper growth, the person said.

This account of Trump’s decision to nominate Powell to lead the most important central bank in the world is based on interviews with about a half-dozen current and former administration officials and people close to the president, in addition to information from the White House briefing. Trump’s choice, aptly enough for the former showman, began with a head-fake.

In an interview with the Wall Street Journal published on July 25, Trump said that Janet Yellen was in the running to keep her job. But he also mentioned someone else he had in mind for Fed chair: his chief economic adviser, Gary Cohn, who was sitting next to him.

“He doesn’t know this, but yes he is,” Trump said after the Journal asked if Cohn was a candidate.

Yellen v. Cohn

Fed chair wasn’t a priority for Trump or the White House at the time. At one point in the summer, Trump thought he had until the fall of 2018 to choose a chairman to replace Yellen, whose term actually expires in February. Cohn, who up until the Journal interview had been managing the nascent Fed search, felt obliged to recuse himself from the decision after Trump publicly named him a candidate, people familiar with the matter said.

To the extent Trump engaged in the decision during the summer, the names he floated were Yellen and Cohn, according to one person familiar with the matter. Cohn did not advocate for himself in front of other White House staff, the person said. And though his top aides didn’t take him seriously, Trump seemed to be gravitating toward Yellen as his pick, both for market stability and because new presidents traditionally reappoint the incumbent Fed chairman, the person said.

Then came Charlottesville. On Aug. 12, a mob of white supremacists and Nazi sympathizers marched into the Virginia college town to protest the removal of a statue of Robert E. Lee. The protesters instigated violence against a large gathering of counter-protesters; a woman was killed. Trump said that “both sides” were responsible and that there were “very fine people” among the protesters, engendering criticism -- including from Cohn.

“This administration can and must do better in consistently and unequivocally condemning these groups and do everything we can to heal the deep divisions that exist in our communities,” Cohn said in an Aug. 25 interview with the Financial Times widely interpreted as a rebuke of his boss. He said he had felt “enormous pressure” to resign over the affair.

It wasn’t the only reason Trump steered away from nominating Cohn for the Fed job -- the four White House officials, in fact, denied that the interview led to Trump dropping Cohn from consideration. The president was also frustrated with the pace of a tax overhaul, legislation Cohn was in charge of shepherding that would be Trump’s last, best shot this year at a signature domestic achievement after the failure to repeal Obamacare, people familiar with the matter said.

One of the officials said there was concern that Cohn, a Democrat, would have trouble winning Senate confirmation.

“I think the president made a great selection yesterday in Jay Powell,” Cohn said on Bloomberg Television on Friday. He said he and Trump will meet with the Fed chair nominee soon to discuss candidates for vice chairman, which the president also must appoint.

Organized Search

Meanwhile, three key White House aides -- personnel director Johnny DeStefano and two Cohn deputies, Andrew Olmem and Jeremy Katz -- were organizing a systematic job search. The names they would eventually present to Trump reflected dueling constituencies within the White House and the Republican Party. Their shortlist included Yellen -- but her only proponent within the Trump administration appeared to be the president himself.

Many of Trump’s top advisers, regardless of who they favored, agreed that Trump should dump former President Barack Obama’s Fed chair, despite her considerable success in the job. Unemployment was at 4.2 percent in September, a 16-year low, and the economy is in its ninth year of expansion. Inflation and interest rates are low and Yellen is gradually backing off crisis-era policies and unwinding the Fed’s $4.5 trillion balance sheet.

Mnuchin’s favorite, Powell isn’t that distinguishable from Yellen on monetary policy. He has never dissented with her on Fed votes. He is a Republican, however, and, unlike Yellen, didn’t spend many years of his career in the Federal Reserve system. Pence and his chief economist, Mark Calabria, favored Taylor, beloved by conservatives for his criticism of the Fed.

The fifth name on the DeStefano, Olmem and Katz shortlist was Kevin Warsh, a former Fed governor.

Rates and an Enemy

The knock against Taylor, for a president who had grown to enjoy low interest rates, was his namesake Taylor Rule: an equation he devised that would dictate higher rates than under Yellen. Trump, once critical of Yellen’s policies as a presidential candidate, had a change of heart after he entered office and the stock market boomed -- a phenomenon he frequently observed at his @realdonaldtrump Twitter account.

Trump never talked about rates or the direction they should go with his Fed candidates, according to the officials who briefed reporters.

Warsh, meanwhile, had made a key enemy in his previous stint on the Fed board: Randal Quarles, whom Trump had nominated for both a governor’s seat and to be vice chairman of bank supervision. Quarles, who was confirmed to both posts in October, told people that he might not remain on the board if Warsh were named chairman. Mnuchin was aware of his concerns.

Interviews Begin

The deliberations gained urgency in late September, soon after Trump resolved looming crises over the debt limit and the government’s budget by striking a controversial deal with Democratic leaders in Congress. He, Mnuchin and Pence interviewed Warsh and Powell on Sept. 27 and 28, respectively, according to people familiar with the matter.

Pence and Trump interviewed Taylor on Oct. 11, and Trump was said to be impressed by the economist. Finally, Trump interviewed Yellen on Oct. 19. Again, he was impressed, he said.

Five days later, he added to the drama by asking Republican senators in a closed-door meeting at the Capitol for a show of hands on Yellen, Powell and Taylor. He left out Cohn and Warsh, suggesting they had faded from consideration.

Taylor appeared to win the president’s straw poll, South Carolina Senator Tim Scott said.

One of the White House officials said Trump indeed had by then narrowed his shortlist to Yellen, Powell and Taylor.

Yellen v. Powell

In an Oct. 25 interview, Trump again told Fox Business Network anchor Lou Dobbs -- who recommended Yellen’s reappointment -- that she was “very impressive.”

But he added: “you like to make your own mark.” Bloomberg News reported that Cohn was out of the running the same day, and on Oct. 27 reported that Powell was the front-runner.

The four officials said it is unclear when Trump made up his mind. He was still asking his aides questions about multiple candidates as of Oct. 27, they said.

Trump offered Powell the job on Tuesday and he accepted, the four officials said. Trump called Yellen, the first woman to lead the Fed, on Thursday morning to tell her she would be replaced, they said.