Federal Reserve

If Trump wins, 'Yellen would resign fairly quickly': Economist

Debate reaction: Trade and the Fed
Debate reaction: Trade and the Fed

Judging by the candidate's recent comments, a Donald Trump administration would not be hospitable to the current Federal Reserve makeup.

Consequently, should the Republican win, it would create pressure on the central bank's command structure — so much so that Chair Janet Yellen would be inclined to resign, according to one analysis of the increasingly tense situation.

"If Donald Trump wins November's presidential election, there is now a clear possibility that Fed Chair Janet Yellen would resign almost immediately, perhaps even before the mid-December (Federal Open Market Committee) meeting," Paul Ashworth, chief U.S. economist at Capital Economics, a London-based global forecasting firm, said in a note. "It is hard to see how she could continue in her position until her current term expires in early 2018."

The speculation comes amid a fresh round of criticism the outspoken New York businessman has lobbed at the Fed.

In a Sept. 12 CNBC appearance, Trump blasted the Fed for being political and said Yellen herself should be "ashamed."

He doubled down on those remarks during Monday night's debate, saying the central bank was keeping interest rates low in order to boost the stock market and help the Obama administration.

Janet Yellen
Pete Marovich | Bloomberg | Getty Images

"We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that's doing political things," Trump said, adding, "the Fed is not doing their job. The Fed is being more political than Secretary Clinton."

Despite heat from Trump, the Fed chair is unlikely to walk away, said economist Alan Blinder, professor of economics and public affairs at Princeton University.

"Should Donald Trump, God forbid, win the presidency, he has every right to put in a new Fed chair," Blinder said. "The notion that she would resign because of ridiculous things that he has said is ludicrous."

Trump has not called for Yellen's resignation, but indicated that he might replace her. The election comes a month before the Fed meets Dec. 13-14 — a meeting during which the Fed is widely expected to approve an interest rate hike.

Yellen: 'politics plays no role in our decisions'

Capital Economics' Ashworth said he expects Trump's criticism to continue during the rest of the campaign, putting Yellen in a possibly untenable position.

"If Trump wins, we now think Yellen would resign fairly quickly as a matter of principle," Ashworth said.

"The main reason for believing that Yellen would resign almost immediately is that falling on her sword would take some of the political heat off the rest of the FOMC," he added.

Whether she would take such a dramatic step is unclear, and a spokesman said she would not comment specifically on Trump's remarks. Yellen, however, did offer up a fairly spirited defense of the Fed's independence during her quarterly news conference Sept. 21.

"I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy," Yellen said in response to a question about Trump's attacks. "We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see as affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions."

Fed historian Allan Meltzer at Carnegie Mellon countered that the Fed indeed has been political by helping underwrite trillions in U.S. government debt.

"The Fed always has been a political agency. If you're in Washington, you're a political agency. But this Fed has been totally politicized," Meltzer said in a phone interview. The central bank's low interest rates take "all the pressure off the administration to do something about its deficits."

"It's quite appropriate that (Trump) says, yes, need to do something about the Fed, we need to depoliticize the Fed," he added.

While Meltzer said he is unsure whether Yellen would resign, he believes she should consider it.

"I have no idea about that. That would be entirely up to her," he said. "I think the Fed needs to be reformed, and if her resignation is one of the ways that's accomplished, yes."