During the 2016 campaign, President Trump declared that in "five, 10 years from now" the Republicans will be "a worker's party." That promise is now a smoking crater: Trump backed four different GOP attempts to kill ObamaCare, which would've taken insurance away from tens of millions of Americans. He's now championing a tax "reform" that would be a massive giveaway to the wealthy. And he even helped the GOP gut a slew of protections for workers' rights.
Just about the only major area where Trump hasn't thrown working Americans under the bus is monetary policy. But that may be about to change.
Here's the deal: Monetary policy is set by the Federal Reserve, America's central bank. While the Fed occasionally uses creative policies like quantitative easing, most of the time monetary policy boils down to adjusting interest rates. Lower rates promote job and wage growth, but also risk higher inflation. Higher interest rates contain inflation, but also squash job and wage growth. The ostensible goal is to hit the sweet spot between stable inflation and maximum employment.
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These decisions are made by a 12-member voting board, seven of which are nominated by the president and confirmed by the Senate. Trump will have the opportunity to fill no less than five of those seats. Furthermore, Trump will get to pick the Fed chair — the leader who guides the other 11 members in their decisions. The term for the current Fed chair, Janet Yellen, expires in February of 2018.
In the last week or so, Trump has sped up meetings with potential replacements for Yellen. "I'll be making a decision over the next two or three weeks," he told a press conference several days ago.
Prominent among the contenders is Kevin Warsh, a former investment banker at Morgan Stanley who also did a previous stint on the Fed board. Warsh has a reputation as a "hard money hawk" who prefers lowering the Fed's current inflation target from 2 percent to between 1 and 2 percent. Were that to happen, the current 1.4 percent inflation rate would already be virtually "on target," which would be used to justify bigger and quicker rate hikes.
Thanks to the reforms that came after the Great Recession, the Fed also plays a sizable role in financial regulation. Trump has made no bones about his desire to roll back those rules, and Warsh is on board with that deregulatory push.
Jerome Powell, a Fed board member who served as a Carlyle partner and a treasury official, might be what Reuters called the "Goldilocks" pick. He's a Republican and sympathetic to Trump's deregulation push, but he's also largely backed Yellen's slow-and-easy approach to interest rate hikes.
Another possibility is Gary Cohn, Trump's chief economic adviser, who used to be a former top official at Goldman Sachs. He likely falls into the same "Goldilocks" category as Powell. But he also criticized Trump over his Charlottesville comments, which may well have hurt his chances.
Finally, Trump could just renominate Yellen. But of these four candidates, Yellen is arguably the most dovish on interest rates and the only one who would likely cause serious problems for Trump's deregulatory agenda. Renominating her would also almost certainly spark a backlash from Trump's fellow Republicans.
Now, Trump is far too unpredictable to say with any confidence which way he'll go. But the stakes here are considerable.
Following the 2008 collapse, the Fed dropped interest rates all the way down to zero for years to boost the recovery. But despite that effort — and a current unemployment rate of 4.4 percent — the U.S. economy remains weak. Labor force participation is depressed, wage growth is sluggish, and the Fed cannot seem to get inflation to even reach its 2 percent target, much less exceed it. For millions upon millions of workers — especially nonwhite Americans and those without a bachelor's degree — genuine recovery remains a long ways off.
At the same time, low inflation and high interest rates generate bigger profit margins for banks and financial firms. And most business owners everywhere would prefer that jobs not become too plentiful, lest they lose their profit margins to worker demands for higher compensation. So the Fed is under considerable pressure from the financial establishment and hawkish Republicans to hike rates, which it slowly began doing over the last two years — despite the almost total lack of evidence that such hikes are actually called for.
Ordinary workers obviously also have an interest in making sure the financial industry doesn't collapse the economy again. So Trump's "populist" bona fides rest on how the Fed handles that issue too.
With his nominations, and especially his pick for Fed chair, Trump has the power to decide the future course of monetary policy, and the strength of financial oversight.
Despite his enthusiasm for unleashing Wall Street risk-taking, Trump has at least called himself a "low interest rate person" in the past. One could take this as a sign that he might resist his party's hawkish tendencies. But he clearly lacks both the policy literacy and the ideological commitment to do so. Yellen would also seemingly qualify as a "low interest rate person." But depending on his mood and the political moment, Trump has rocketed from praising her for "a good job," to accusing her of creating a "false stock market" and saying she should be "ashamed of herself."
Undoubtedly, picking Warsh for Fed chair would be the worst-case scenario. But the fact is, even Yellen isn't nearly as dovish on interest rates as she should be. Yet she is by far the most pro-worker of the four major candidates, and also the least likely to get the nomination.
It's depressing to think that Powell or Cohn as Fed chair would count as a bullet dodged by American workers. But that seems to be where we're headed.
