Federal Reserve

Mitt Romney poses a major headache for Trump on Fed appointments

Key Points
  • President Donald Trump and Sen. Mitt Romney are likely to continue clashing over Fed nominees.
  • Romney was poised to lead an effort to block a potential nomination of Herman Cain to the central bank.
  • The Utah senator and former presidential nominee said he wants economists, not political appointees, at the Fed.
Sen. Mitt Romney, R-Utah, talks with reporters before the Senate Policy luncheons in the Capitol on Tuesday, March 5, 2019.
Tom Williams | CQ-Roll Call Group | Getty Images

President Donald Trump's effort to stack the Federal Reserve with ideological allies has run into a familiar foe: Republican Sen. Mitt Romney, who's likely to continue to act as a bulwark against the central bank becoming a target for political appointees.

Herman Cain's decision Monday to withdraw his name from consideration as a Fed governor was largely academic. Romney and three other GOP senators already were poised to torpedo the former Kansas City Fed president and pizza CEO's nomination if it was brought to a vote.

Romney and Trump have clashed before.

Herman Cain drops out of running for Federal Reserve Board
Herman Cain drops out of running for Federal Reserve Board

During the 2016 Republican presidential primary season, Romney held a news conference to lambaste candidate Trump. The Utah senator also was critical of the president following last week's release of Robert Mueller's investigation into accusations that the Trump campaign colluded with Russia to sway the General Election.

The battleground has now shifted, and Romney is expected to dig in against efforts by Trump to appoint Fed officials who will enforce his highly publicized demands for lower interest rates.

"On a lot of issues, Romney is sort of a Boy Scout. I think he sincerely believes in getting the best qualified people, and clearly Cain was not," said Greg Valliere, chief U.S. policy strategist at investment manager AGF. "Romney is going to try to be the arbiter of who's qualified and who's not. The friction between Romney and the White House is only going to intensify."

Romney's office did not respond to several requests for comment.

The 2012 Republican presidential nominee told Politico in an interview earlier this month that he was opposing Cain because he wanted Fed governors who are "economists first and not partisans."

"The key is that someone is outside of the political world and is an economic leader not a partisan leader," he said.

With Cain, as well as economic commentator Stephen Moore, Trump nominated two people who came under fire both for their academic qualifications as well as questionable conduct regarding women. Cain faced harassment allegations that he denied during his own 2012 quest for the presidency, while Moore has seen controversy regarding a divorce, and more recently columns he wrote years ago that used sexist language toward women.

Whether the personal issues would come into play is unknown, but Romney has made it clear what kind of candidate he wants.

Romney and the 'gatekeepers'

Romney "intends to use his new position to try to shield the Fed from overt politicization as part of what we expect will be a broader effort to curb the excesses of the Trump administration and its undermining of independent institutions within government," Krishna Guha, head of the global policy and central bank strategy group at Evercore ISI, said in a research note. "Romney's standard – that he wants to see Fed nominees who are economists first and partisans second – would appear to rule out Moore too."

Moore, though, may have an easier time of it simply because the Republican-controlled Senate may not want to reject both of its president's nominees.

Markets will be watching the developments closely. The Fed is always a focal point for Wall Street but has been even more so as Trump has stepped up his criticism even while Chairman Jerome Powell has indicated no rate hikes are planned at least through the rest of 2019.

Trump "has demonstrated repeatedly disregard for institutional independence within government," Guha said, and if that persists it has the potential to rattle markets.

"Against this backdrop, the readiness and ability of Romney and other pro-business Republicans to be effective gatekeepers now on the current batch of nominees will materially influence how markets price the risk of a more serious assault on Fed independence – one of a cocktail of political risks that will take on substantial importance in the run-up to the 2020 election," Guha wrote.

For his part, Trump has said he believes in Fed independence, but also in expressing his desires.

"The president believes, and I concur, that the Fed's target rate should be lower," Larry Kudlow, the chairman of the National Economic Council and a key advisor to Trump, said Tuesday at the National Press Club. "As you may now, the president is not bashful about expressing his opinions. ... He actually knows quite a bit about this stuff."