Trump’s reshaped Fed won’t reveal itself until the next crisis

The doings of the central bank sound esoteric. But Trump might be making some of his most important moves here.

President Donald Trump took the unheard-of step of preventing a respected, successful Federal Reserve chair from serving a second term. He wanted his own man — emphasis on man — and another erase-Obama’s-presidency trophy, and named Jerome “Jay” Powell to replace Janet Yellen.

Powell’s confirmation hearing before the Senate Banking Committee this week produced few surprises. He generally seemed to support Yellen’s path of gradual interest-rate increases as the economy keeps growing, and no concern about inflation (which is very low). He did say a few telling things, such as the desire to give a “fresh look” at bank regulations (“There’s certainly a lot of regulatory burden.”) and a cryptic statement that no banks are too big to fail anymore.

But Powell is only the start of Trump’s opportunity to change the Fed. He’ll get to name new governors as terms of sitting ones expire. On Wednesday, he nominated Marvin Goodfriend, a professor at Carnegie Mellon University, a critic of the Fed’s response to the financial panic. Goodfriend has also supported closer congressional control of the central bank — an “impeccable conservative” in the words of House Financial Services Committee Chairman Jeb Hensarling, R.-Texas. If confirmed, he would be on the board until 2030.

This is not inside baseball. The Federal Reserve plays a critical role in the economy and lives of average citizens, and its impact extends well beyond setting the baseline for interest rates. It has a dual mandate under the law to keep inflation low while ensuring maximum employment. Through such means as asset purchases and other tools, it decides how tight or loose credit will be and the size of the money supply. This is “monetary policy.” The other wing of government’s economic role is fiscal policy, the spending and tax policies approved by Congress.

The Fed is a regulator, too, overseeing commercial banks. And it compiles and disseminates valuable objective data about the economy. The Fed is nominally independent, although the Fed chair must testify before Congress and the president nominates him and the members of the Board of Governors.

It’s not a new idea. Alexander Hamilton modeled the Bank of the United States on the Bank of England, and from 1791 to 1811, it was important in stabilizing…

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