Here’s What a Former Reagan Advisor Wants Janet Yellen to Do Now Lombardi Letter 2016-12-16 09:07:40 David StockmanFederal ReserveFedJanet YellenDonald TrumpTrumpFed ChairDodd-Frank Rather than being buoyed by the recent market rally, a former advisor to President Ronald Reagan wants Federal Reserve Chair Janet Yellen to step down. U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2016/12/Reagan-Advisor-150x150.jpg

Here’s What a Former Reagan Advisor Wants Janet Yellen to Do Now

Former Reagan Advisor David Stockman Wants Janet Yellen to Resign

Having triumphantly raised the nominal interest rate by a quarter point, Federal Reserve Chair Janet Yellen gave no indications as to when she will step down. But rather than being buoyed by the recent market rally, a former advisor to President Ronald Reagan wants Yellen to step down. In fact, he wants President-elect Donald Trump to do what he’s famous for on The Apprentice and fire her outright.

Janet Yellen, though, is feisty. She won’t step down, at least not before her term ends. (Source: “David Stockman urges Trump to ask for Yellen’s resignation over ‘massive market bubble’,” Economic Collapse News, December 15, 2016.) Stockman fears that Trump will let her stay the course. Yet Trump has not been kind to the Fed Chair.

Those familiar with Stockman, who wrote “The Great Deformation,” understand the reasoning behind his “fire Yellen” logic instinctively. He blames her for having piloted a “massive market bubble.” In Stockman’s words. Yellen “ought to be put out to pasture as soon as possible.” (Source: Ibid.)

By bubble, Stockman intends the S&P trading at 25 times earnings and the Russell 2000 up 40% in 2016. While many think Trump won’t fire Yellen, the next POTUS might yet surprise everyone. Donald Trump has criticized Yellen keeping low rates since the beginning of her term.

As Republican candidate, now President-elect, Trump accused Janet Yellen of participating in an artificial stimulus of the economy with an overly expansive monetary policy. Now that the election is over, Donald Trump reserves his energies—tweets—for other problems.

Meanwhile, Janet Yellen continues to manage monetary policy. On December 14, she announced the first increase in the key rate of 2016; it’s the second in the last 10 years. Fed members said they now anticipate more gradual rate increases over the course of 2017. They also expect two rate increases in 2018. Somewhere after 2019, the central bank aims to stabilize its key rate at three percent.

But Yellen Won’t Resign Just Yet

Will that silence Trump’s criticisms? Not likely. Trump doesn’t have full presidential powers yet, so he can’t act. But Yellen’s chair at the Fed might not be so stable. She has refused to address Trump’s insinuations over her tenure. Yellen has often talked about the fact that the Federal Reserve is independent of the political power. She does not think about the end of things, she said.

Yellen’s first four-year term ends in 2018. For now, she has kept a diplomatic tone regarding Trump’s complaints. She said the Fed would evaluate the effects of the fiscal stimulus that Donald Trump is considering. But, she is not convinced that the US economy particularly needs to be stimulated now. But if this is the case, the Fed will likely raise rates at a faster pace than over the past 10 years—or even previous forecasts, to control the expected inflation.

Where Yellen and Trump will argue is over bank regulations and the Dodd-Frank reforms. The new rules were brought to hold bankers more accountable to risk after the 2008 financial crisis. However, President-elect Donald Trump wants to scrap them. He thinks Dodd-Frank has stifled banks. Yellen would disagree; she suggests it’s necessary to oversee banks. That will become a major point of contention, and the possible catalyst for Yellen’s departure—before the end of her term. But this is unlikely.

Trump has promised to deregulate Wall Street. Thus, he has generated a strong stock market thrust. The financial sector has gained considerably, given that shares of Bank of America And Goldman Sachs have both gained some 30% since November 8.

If Donald Trump wants to undo bank rules, though, he should persuade Congress that his vision is right. Many Congress members would sooner disagree with Trump than Yellen on this. That’s why the Fed and Congress will stay on the side of caution. The Fed’s still managing the effects of the 2007-2008 crisis. It’s too soon to risk more now.

Related Articles