There is disagreement regarding the actual impact that the President can have on the economy, given the absence of direct levers of control over the vast and complex American economy. However, one Presidential power that undoubtedly has critical implications is the nomination of the Federal Reserve Board chair. The person who holds this office answers to no one, not even the President, and has far-reaching powers to direct American monetary policy. As the central bank of the United States, the Fed affects the activity of all other banks and lenders in the country and is also the best defense against runaway inflation and currency crises.
This power is why the upcoming nomination of the Fed chair is so important and why President Trump’s actions on this front are so concerning. While not a legal requirement, historically the Fed chair has been a technocrat with a long history of economic research in academia. Previous Fed chairs, such as Janet Yellen, Ben Bernanke, and Alan Greenspan, have been Ph.D. economists with decades of experience during which they developed a nuanced understanding of the macroeconomy.
Trump initially took little interest in the nomination, leaving the search for a new Fed chair to Treasury Secretary Steve Mnuchin and a few others. This past month, the President began meeting with candidates proposed by this search team. Trump, who told reporters recently that he’d have a decision in two to three weeks, met with four candidates, two of whom have been identified.
The top of the Trump administration shortlist is apparently occupied by Kevin Warsh and Jerome Powell, two lawyers who spent most of their careers on Wall Street. While both men previously worked at the Fed, they were not considered qualified for those jobs at the time. Also, they served in roles where their primary responsibility was in industry knowledge and connections, given their history in investment banking and stock trading.
However, while they may have been helpful in these positions for Yellen and Bernanke due to their industry connections, they are dangerously unqualified for the top position in the Fed. It is imperative for the continued health of the American economy and for protection against a future recession that the Fed chair understands the complex macroeconomic theory that underscores US monetary policy. With either of these two proposed nominees at the helm, continuing the recovery kickstarted by the Obama administration in 2009 will become increasingly unlikely. Even scarier, should another recession hit, the best defense we have will be woefully unprepared to protect this country from a crisis.