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Federal Reserve Chair Janet Yellen’s candidacy for another term is encountering resistance from some Trump administration advisers who want a new leader at the U.S. central bank, according to two administration officials, even as the Treasury secretary indicated she may still be in the running.

Janet Yellen Photographer: Andrew Harrer/Bloomberg

While White House officials are aware that Fed chiefs in the past have been asked to stay regardless of party affiliation, some advisers are keen to install their own pick in the coveted seat, two officials said on the condition of anonymity to discuss private deliberations. The selection process is in the early stages.

Publicly, Yellen hasn’t been ruled out.

“We haven’t made any decisions yet on the Fed chair, whether we’re going to have a new one or not going to have a new one,” Treasury Secretary Steven Mnuchin said in a Bloomberg Television interview June 20.

Mnuchin comments on the next Federal Reserve Chairman. Source: Bloomberg

President Donald Trump has until the fall of this year to make a decision on a central bank chief and hasn’t given much thought yet to the qualities he’d like to see in potential contenders, according to another administration official, who like the others spoke about the matter on condition of anonymity.

The president hasn’t even discussed the situation at any length with his top economic adviser, Gary Cohn, this official said. Moreover, Trump likes Yellen and feels no sense of urgency to explore the matter, the official said.

Market Reaction

Speculation that the Fed leader will stay on past her term ending in February is belied by the talk inside the White House that some of Trump’s aides doubt that he’d stick with Yellen, whom candidate Trump criticized last year for keeping interest rates low to help then-President Barack Obama.

“We’ll be working closely together with the president to consider all the issues,” Mnuchin added. Cohn, director of the National Economic Council, is working with Mnuchin on several Fed vacancies in the coming months. The two former executives of Goldman Sachs Group Inc. will be mindful of the financial-market impact of their decision.

The job of Fed chair affects every American, businesses that borrow and the price of money everywhere. The bond market would punish a bad choice, boosting market interest rates and threatening the economic expansion. Given the weight of the position, previous presidents have opted for continuity and reappointed the sitting chair, a tradition that would argue in favor of Yellen.

For her part, Yellen was careful not to criticize the president at her June 14 press conference. “I have felt that it’s been appropriate for interest rates to remain low for a very long time,” she said when asked about reports that Trump told her he considered her a “low interest-rate” person like himself.

When asked about a proposal to cut federal funding for job training programs, Yellen steered clear of criticizing the administration, noting “these programs can be undertaken at many different levels.”

People familiar with Trump’s sentiment suggest that the next chair -- if not Yellen -- is likely to have several qualities already visible in White House policies and nominations: a deregulatory bias, and a concern for credit flowing down to small businesses.

Loyalty vs Independence

There’s another quality that shows through in his appointments that may not mesh well with the concept of an independent central bank: loyalty.

“What is Trump going to demand from the Fed chair? That is the question,” said Mark Spindel, an investment manager who has co-authored a book in the Fed’s relationship with Congress that will be published in August.

Republicans want to push through fiscal stimulus and tax reform at a time when the U.S. expansion has just completed its eighth year.

“The White House is not going to want the Fed” to offset fiscal initiatives, said Paul Mortimer-Lee, the chief economist for North America at BNP Paribas. “Whoever is running the Fed has to be independent enough to stand up to that.”

Conflicts may arise from a subtler point. White House officials could argue their tax policies hold the promise of supply-side effects that boost the economy’s potential growth down the road. Fed officials could disagree and raise rates, citing the short-term risks of higher inflation.

Job-Market Slack

Unemployment is low at 4.3 percent, and Fed officials expect a tight job market to push prices up -- one reason why they raised interest rates June 14. Mnuchin has said the unemployment rate has “excessive influence” over policy while pointing to broader measures of labor market slack.

However, even alternate measures of the jobless rate -- which Yellen has also referred to -- have come down in recent months.

“The big challenge for the next Fed chair is that the time will come to hit the brakes a little harder and cap the rise in inflation,” said Ethan Harris, head of global economics research at Bank of America Merrill Lynch. “Working through that without a recession is extremely difficult.”

Judy Shelton, an economist who advised the Trump transition team, said the president will look for somebody who wants to remove obstacles to Main Street credit growth.

“He was very concerned that small businesses didn’t have access to funds,” Shelton said. He was also concerned that “savers were getting zilch,” she added.

Careful Selection

Choosing a Fed chair is typically the result of months of careful analysis by White House staff with highly specified criteria, according to people previously involved the decisions.

Republicans also have a general sense that the Fed under former Chairman Ben Bernanke was too expansive and discretionary.

That’s raised investor’s interest in economists who espouse monetary rules such as Stanford University’s John Taylor. Glenn Hubbard, the dean of the Columbia University’s business school, wrote an essay in The Wall Street Journal on June 15 that advocated a policy rule.

Taylor, Hubbard and former Fed governor Kevin Warsh were among the top four people economists picked as most likely candidates for the Fed chair job in a Bloomberg News survey conducted June 5-8. Yellen was atop the list.

Rumors about Yellen’s possible successor are likely to intensify as central bankers from around the world gather in Jackson Hole, Wyoming, for the annual conference sponsored by the Kansas City Fed typically held in August.

Warsh’s Chances

The vetting process for Fed chairs isn’t transparent, and the choices aren’t always predictable. For that reason, outsiders on occasion act like they are running for office. For example, Warsh, a Bush appointee to the Fed, attended a monetary policy meeting at the Hoover Institution at Stanford in May. Warsh is a fellow at Hoover.

Warsh, who didn’t respond to a request for comment, was listed as a discussion moderator following a presentation by Princeton University economist Markus Brunnermeier on the euro crisis. Instead, Warsh gave a speech on the Fed that used variations of the word “reform” a dozen times in the text, prompting some in the audience to conclude he was campaigning for the Trump nomination. A public relations firm is reaching out to reporters for Hubbard.

“The Trump White House has been so chaotic in terms of vetting, selecting, and actually nominating candidates that such uncertainty invites opportunistic angling for the nomination,” said Sarah Binder, a senior fellow of governance studies at the Brookings Institution in Washington, and a co-author with Spindel on the Fed book.

Crisis Management

Jason Furman, the former chair of the Council of Economic Advisers under Obama, said White House staff initially had four specific criteria to screen candidates as they approached the renomination of Bernanke and the nomination of Yellen.

The first, he said, was how the person would manage policy in a recession or crisis, a question Furman said is relevant today. “The number one quality is: What are they going to do in stressful circumstances?” Furman said.

Managing the large and diverse Fed system, which has 12 regional banks, was another criterion, as was confirmability, Furman said. The White House’s legislative director sat in on every Oval Office meeting on Fed candidates, he added.

Finally, Furman said, some reflection of “White House values” was part of the consideration. For Obama, that included jobs. Yellen checked several of those boxes.

And the chair’s independence? That was a basic assumption by everybody involved, Furman said. “We just we took it for granted that whoever we picked would not be listening to us on monetary policy,” he said.

— With assistance by Shannon Pettypiece