Trump would replace Yellen as Fed chief? That's a big red flag

Rob Cox, Reuters BreakingViews
Donald Trump: I am for low interest rates
Donald Trump: I am for low interest rates

Donald Trump is making the most of a two-day-old presumptive nomination to be the Republican candidate for the White House. In his latest break with the general decorum that once befitted the office he is seeking, the reality-television veteran has said he would aim to change the guard at the Federal Reserve.

Donald Trump
Donald Trump: This is why I'm for low interest rates

It's not that Janet Yellen is doing a bad job. The Fed's longstanding easy-money policy — with a federal funds rate now at 0.25 percent — is to Trump's liking, he told CNBC on Thursday. "I love the concept of a strong dollar," he said, but it creates havoc in markets and trade, while higher rates would make it more expensive for the country to service its debts.

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Instead, Trump says he would invoke his TV catch phrase from "The Apprentice" to tell Yellen "You're fired" simply because she's not a Republican. Even in the divisive state of contemporary American politics, this portends a stunning act of partisanship.

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The Fed's credibility is derived in large measure by its independence from the legislative and executive branches of the U.S. government. This autonomy separates the Fed from, say, its counterparts in Venezuela or the People's Republic of China, and is a significant component of the dollar's enviable position as the world's reserve currency.

That's why presidents have almost never intervened along the lines Trump is suggesting he would with Yellen, whose term ends in 2018. Barack Obama, a Democrat, reappointed Ben Bernanke, a Republican first nominated by George W. Bush, to a second term in 2009, citing a desire for policy continuity. Democrat Bill Clinton did the same, twice, for Alan Greenspan, a Republican. In 1983, Republican Ronald Reagan kept Paul Volcker, a Democrat named by Jimmy Carter, for a second term.

Donald Trump, US Republican 2016 candidate
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Flipping tradition on its head is, of course, all part of Trump's iconoclastic campaign for the White House. In the CNBC interview, Trump discussed the need to handle America's monetary affairs "very, very carefully" because "now you're talking about something that's very, very fragile." In that context, replacing Yellen because of her party affiliation would be an act of extreme carelessness — and probably only one of many that could be expected from a Trump presidency.

Commentary by Rob Cox of Reuters BreakingViews.

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