There are already hints as to what philosophy on regulation and monetary policy Donald Trump's choices might have. | Getty Fed-bashing Trump has chance to remake central bank

It’s Donald Trump’s Fed now.

Trump relentlessly attacked the Federal Reserve on the campaign trail, saying Chair Janet Yellen haswas refusing to raise interest rates in a bid to artificially boost the economy and help Democrats. “She is very political,” he said in September, and “she should be ashamed of herself.”


Now, Trump has the chance to reshape the central bank within the first 18 months of his presidency.

As soon as he enters the White House, he could submit nominations for two vacant Fed governor seats, as well as for the powerful post of vice chair of supervision, which oversees the nation’s biggest banks. That would mean he could instantly make his mark on both monetary and regulatory policy.

More dominoes will fall in the coming months. These include the increasingly likely departure of Gov. Daniel Tarullo — dubbed “the most powerful man in banking” — as the Fed’s regulations chief; the expiration of Yellen’s term as chair in February 2018, and the end of Stanley Fischer’s vice chairmanship in June 2018.

That’s five of the seven governor slots. More departures could follow.

Filling these positions would give enormous influence over the U.S. central bank to a man who has been more openly critical of the Fed’s motives than perhaps any major party presidential candidate in history. It also raises questions about whether the Fed will be able retain the independence it has enjoyed for much of its more than 100 years in existence.

“I’m very worried,” said Simon Johnson, a senior fellow at the Peterson Institute for International Economics. “The independence of the Fed is absolutely in jeopardy, based on what Mr. Trump has said.”

"If they’re not willing to follow through” on implementing regulations, added Johnson, a former chief economist at the IMF, “then we have a big problem."

Yellen has pushed back against Trump’s comments, saying at a September press conference, "I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy." Fed observers expect her to stay through the end of her chairmanship, but the pressure on her could be intense.

The prospect of Trump remaking the Fed board, as jarring as it might seem to many Democrats and central bank watchers, is drawing applause from some critics who say the regulations imposed since the 2008 financial crisis have slowed the economy.

“If Trump has the ability to get rid of five of the seven governors — Hallelujah!,” said Dick Bove, an analyst at Rafferty Capital Markets. “If anybody really wants to deregulate the United States economy, it’s got to start at the Federal Reserve."

It’s unclear who Trump might pick to serve on the Fed board. Among the names being tossed about are Paul Atkins, a former SEC commissioner who has a key job in the transition; Kevin Warsh, a former Fed governor at Stanford's Hoover Institution, and David Malpass, who has been heading up the transition effort for the Treasury Department.

There already are hints as to what philosophy on regulation and monetary policy Trump's choices might have. The real estate mogul has consistently relied on advisers with business backgrounds, increasing the likelihood his Fed nominees would be industry people and not academics.

That in itself would be a shift. “Very few members of the board have been business people in the last 15 years or so,” one former Fed official said.

As for what effect that change might have on regulations, the official said Fed governors with a business background would presumably look at monetary policy “less through the lens of economic models and more through trying to have a feel for what actually is going on in the economy, and to what extent businessmen are feeling confident to create jobs, make investments.”

Another hint comes through Trump’s selection of Atkins, the former SEC commissioner, to run the transition effort for financial regulatory agencies.

“Paul is somebody who is free market and concerned about regulatory overreach,” said Meg Tahyar, a partner at law firm Davis Polk, where Atkins used to work. “He’s obviously a thoughtful lawyer.”

“He is going to look at what’s happened for the last eight years and say, 'Where did it go too far, and where can we tilt back toward the market?' And that’s the kind of people he’ll be bringing in,” she said.

And given that Trump is likely to be more focused on trade, immigration and Obamacare in the early days of his presidency, people like Atkins and other financial regulatory experts are much more likely to shape policy in that area, she said.

Atkins could be a candidate for the Fed vice chair of supervision slot. There’s also speculation that Trump will pick FDIC Vice Chairman Tom Hoenig, who has always taken a keen and public interest in banking regulations.

“Tom is a populist,” the former Fed official said. “He would be, I think in terms of personnel, one person who Trump could say, ‘Well, I told you I was going to shake things up and take populist concerns seriously, and here he is.'”

Meanwhile, one of the two open Fed governor slots must, by law, go to someone with community bank experience. While Trump could renominate Allan Landon, Obama’s nonpartisan, Hawaii-based pick for the position, Tahyar said it was more likely the incoming president would pick someone more representative of his voter base.

“I think he's going to nominate someone from a community bank from a state that is salt of the earth, industrial heartland, so he could say, ‘I’m putting somebody on the Fed who understands the problems from the devastated Midwest and would be able to bring that to the Fed,’” she said.

Trump economic adviser Stephen Moore suggested Malpass, who worked for Presidents Ronald Reagan and George H.W. Bush, as someone Trump might name to the central bank.

Malpass was also cited, along with Trump advisers Judy Shelton, Larry Kudlow and Moore himself, as being on a personal wish list by J.W. Verret, associate professor of law at George Mason University's Antonin Scalia Law School.

“They all appreciate the importance of independent monetary policy,” Verret said. “They also appreciate the fact that the Fed's approach over the last six years has been counterproductive, and I think they also appreciate just how aggressive and unmoored from economic evidence the Fed has been in its approach to regulation.”

Other questions loom for the central bank and the industry it regulates. Will a Republican Congress take up Fed reforms? Andrew Levin, a professor at Dartmouth College and a former aide to Yellen, suggested there might be bipartisan support for some comprehensive review of the Fed, which the central bank has been wary of.

It’s also unclear what a different regulatory philosophy might mean for the hard-fought negotiations over international standards known as Basel III; will Trump-appointed regulators even implement them?

“Automatic adherence to global standards” will no longer be a given, said Karen Shaw Petrou, a managing partner at Federal Financial Analytics.

Zachary Warmbrodt contributed to this report.