Fed Chair Janet Yellen made news Thursday morning by telling a Joint Economic hearing on Capitol Hill that she isn’t stepping down just because President-elect Donald Trump has been one of her harshest public critics.
But if Trump critics are hoping this means Yellen will stand as a major opponent to Trump’s eventual policies, they need to think again. History and Washington’s realities tell us that Yellen will probably toe the Trump line.
We tend to think of Fed Chairs as being independent of the usual partisan games in D.C. They’re not. But what they do have is more flexibility to shift with the political winds of the time and get in line with whatever the current president wants. How else can you explain the terms of chairmen like Paul Volcker, Alan Greenspan, and Ben Bernanke that all spanned the terms of Republican and Democrat presidents and very different economic conditions to boot?
Even the Fed chairman widely considered to be the biggest failure of the modern era, William Miller, was so in line with the Carter administration at the time that the White House simply switched him from the Fed to the job of treasury secretary in 1979.
The reasons why Fed chairs keep their jobs for so long is because a strong economy is in both their and the current administration’s best interests. Logically, the only potential problem is when the Fed chair and the White House don’t agree on how to get there.
But most Fed chairs, except for Miller, understand that opposing the president of the United States publicly on interest rate policy would almost guarantee poor economic sentiment. So, they simply just go along.
Nobody in Washington stays in power without playing the political game. And so, Yellen’s statement today does not tell us really what her policies will be going forward. It certainly doesn’t tell us what President Trump’s policies will be either. But it does tell us that Yellen will almost definitely start singing a harmonious tune as soon as the Trump administration sends her the music.