ONE of the many fears about President Donald Trump was that he would pack the Federal Reserve with loyalists. That concern has been replaced by another: the central bank’s top echelons are unpacked with anyone. On September 6th Stanley Fischer, a seasoned policymaker and crisis-fighter (see Free exchange), announced that for personal reasons he was retiring early as vice-chairman. That means a fourth vacancy has opened up on the Fed’s board; as a consequence, four of the 12 seats on the Fed’s interest-rate-setting committee are also up for grabs. That number could rise to five in February, when Janet Yellen’s term as Fed chair is due to end.
Mr Trump has been slow to make senior appointments of any kind. But an underpowered Fed is a particular concern. Its policies help determine everything from the health of the American economy to the price of credit in emerging markets. The best way for the president to start dealing with the backlog is to reappoint Ms Yellen head of the Fed. That might clash with his instincts. Mr Trump values loyalty above competence. Ms Yellen, first appointed by Barack Obama, is a Democrat who has pushed back against proposals from the Treasury that would weaken financial regulation. But a second term for her would provide clarity about the Fed’s future direction and independence, and make the other posts easier to fill.
The case for reappointing Ms Yellen is not cut and dried. In principle, it would be better for central-bank bosses not to serve more than one term; a supplicant for a second term is likelier to do the bidding of politicians. The president of the European Central Bank is limited to a single eight-year term in part for this reason. Alan Greenspan served as Fed chairman for long enough to inspire an unhealthy cult of personality.
Yet the arguments for an experienced hand to guide the economy also have more power than usual at the moment. The Fed faces some tricky technical tasks, from reversing quantitative easing (see article) to solving the puzzle of why low unemployment has not juiced up inflation. America’s economy is on a good run. Only twice in its history has its GDP grown for more consecutive quarters. Mistakes in monetary policy are often made as the economic cycle matures, when judgments about the right interest rate are hardest. And when the next recession arrives, the Fed will not have much firepower: its policy rate is unlikely to be much above 2%, leaving little room to cut. A seasoned policymaker will be all the more valuable, since the Treasury is also notably short of them.
A second reason to reappoint Ms Yellen is that the Republican-backed candidates to replace her are not impressive. Gary Cohn, Mr Trump’s senior economic adviser, has no experience as a central banker. (He may also have scuppered his chances by criticising his boss’s response to the recent violence in Charlottesville.) Another aspirant, Kevin Warsh, served on the Fed’s open-market committee from 2006 to 2011, and has been lobbying hard for the top job. But he displayed some questionable judgment during that stint, fretting that monetary policy was too loose at a time when the American economy still needed support. His co-authorship of a paper in praise of the economic-policy proposals of Mr Trump may endear him to the White House but raises questions about how independent he would be as Fed chairman. Another of the co-authors, John Taylor of Stanford University, might be too rigid in his judgments on interest rates when discretion is needed. Others in the frame lack the breadth of experience and knowledge that the job demands.
A third argument in her favour is precedent. Every Fed chairman since the late 1970s has been given a second term by a president from a different party. Paul Volcker, a Democrat, was reappointed by Ronald Reagan. Bill Clinton gave Mr Greenspan, a Republican, a second term. And Ben Bernanke was renominated by Mr Obama. The Fed is supposed to stand above politics; ideally the appointment should have bipartisan support. If Mr Trump is not swayed by precedent, he might be convinced by a more practical concern: Ms Yellen’s confirmation would be less fraught than that of other candidates.
Four more years
None of these arguments would carry much weight if Ms Yellen had not done a good job. But she has. She is decried both for having raised interest rates too soon and for being too cautious about the pace of increases. Yet instinctive hawks should note that inflation is still shy of the Fed’s 2% target. And doves should acknowledge that jobs growth has been a healthy 185,000 per month since the Fed started to raise rates in December 2015. The Yellen Fed has found a decent balance. Mr Trump should decide now to give her another term.
–Top Twitter To Follow: