How much influence President-elect Donald Trump will have on the Federal Reserve Board — and how quickly he can obtain it — will likely depend on the caliber and ideology of the two people he selects to fill the current vacancies on the seven-member panel.
As it currently stands, the other five members of the board have terms that stretch until 2020 at the earliest, preventing Trump from having his own nominees in the majority until well after the end of his first term.
But if the president-elect plays his cards right and nominates individuals with subject matter expertise and clout within the broader Fed system, it could provide reassurance to current board members and encourage them to leave early, allowing Trump to gain more influence faster.
"I certainly could see, with the right picks… come 2019, almost an entire Fed board appointed by Trump," said Mark Calabria, director of financial regulation studies at the Cato Institute.
At the same time, if Trump were to pick radicals or those perceived as lacking adequate qualifications, it could convince the current stable of Fed board members to stay as long as they could, said Peter Conti-Brown, assistant professor of legal studies and business ethics at the University of Pennsylvania's Wharton School of Business.
What Trump will do, of course, remains a mystery. But Conti-Brown said if Trump chooses those who advocate a return to the gold standard or the abolition of the Fed itself, the current board members will be reluctant to leave.
"The Fed attracts with such fervor and frequency the very conspiracy theorists that Trump has so far indulged," Conti-Brown said. "That's the part where I am completely in a fog as far as Trump's thinking."
To be sure, Trump will have the opportunity to pick a new chairman in 2018, regardless of what happens. Fed Chair Janet Yellen's term as the chief central banker expires at that time — but her term as a governor does not. The chair and vice chair terms are four years, while governor terms stretch for far longer. As a result, Yellen could find herself replaced as chairman, but remain on the board until her board term expires in 2024.
For her part, Yellen has said she intends to serve out her term as Fed chair, but sidestepped the question of whether she may stay on the board afterwards, saying at a press conference last month that it is "a decision for another day."
Marcus Stanley, director of regulatory affairs at Americans for Financial Reform, said that until Yellen's chairmanship expires, the existing power dynamics on the board will remain intact, even with two additional nominees. He said he expects Fed Gov. Daniel Tarullo, whose term expires in 2022, will likely stay at least until Yellen's term expires, if for no other reason than to defend the regulatory structure he has worked to establish.
"So long as Yellen is chair of the Fed, it's going to be possible to preserve the core elements of that system, and I think there is consensus, even within the industry, that that system has done valuable things," Stanley said. "Yellen goes in early 2018, I think the real question is what happens after that, and that depends a lot on who Trump nominates as chair."
The Trump transition team has not officially commented on who it is considering for its two initial picks to the board, but there are some legal requirements associated with whom he may choose.
For one, a 2015 bill reauthorizing the Terrorism Risk Insurance Act included a rider that requires the Fed Board to include at least one member with community banking experience. And one of the two initial vacancies would almost certainly also have to double as the administration's pick for vice chairman of banking supervision — a role created in Dodd-Frank that has thus far not been filled, though Tarullo has done the job on a de facto basis.
One of the vacant seats also has a term that expires in 2018, meaning that any selection for that position would have to be re-nominated and reconsidered by the Senate within roughly 18 months.
Another factor for Trump in filling the current vacancies is that if Yellen is no longer chair next year, but continues on the board, Trump must limit his choice of the next chairman to those already on the Fed board. That makes filling these two vacancies even more important, as Trump would likely choose one of them to lead the Fed.
Stanford University economics professor John Taylor — a leading advocate for rules-based monetary policy — and former Fed Governor Kevin Warsh are among the names floated as possible Trump picks for Fed chair.
The leading candidates to serve in the vice chairman of banking supervision role, meanwhile, are Tom Hoenig, former president of the Kansas City Fed and current Vice Chairman of the Federal Deposit Insurance Corp.; John Allison, former CEO of BB&T; and Paul Atkins, a former member of the Securities and Exchange Commission and member of Trump's transition team.
Some wonder whether Tarullo may leave, however, once a vice chairman for banking supervision is chosen, which would give Trump additional leeway. But Jordan Haedtler, deputy campaign manager for the Fed Up campaign — a movement pushing for greater consideration of impoverished and minority communities in monetary policy decisions — said Tarullo should carefully consider staying on.
"Governor Tarullo should realize that he still has power, and that his expertise and record are very valuable at the Board of Governors even if he is no longer serving in the vice chair of supervision role," Haedtler said. "The vice chair for supervision, whoever it is, still has to consult with him and the other governors to develop rules and regulations."
Calabria said that decision likely has more to do with the personalities at play. If Trump chooses someone with little footprint or expertise in the Fed system and who is unable to build relationships and coalitions among board members, Tarullo may decide rightly that he could serve an outsized role on the board even if he does not technically hold the vice chairmanship.
"The question really ought to be, is this someone that Dan Tarullo can roll or not? To me, I think that matters more than where they are on the spectrum," Calabria said. "If he thinks that he can essentially still do the job, even if somebody else has got the title, I think he stays."
When it comes to Yellen — and to a lesser extent, vice chairman Stanley Fischer, whose term as governor expires in 2020 — the decision of whether to stay comes with baggage.
In the Fed's 104-year history, only one person has remained on the board after their chairmanship expired — Marriner Stoddard Eccles, who stayed in 1948 as part of a very public spat with then-President Harry Truman over the question of public borrowing and the Fed's independence from the Treasury. Ultimately, Eccles retired in 1951 when the White House and Fed agreed to restore the Fed's pre-wartime authority to set its own interest rates.
But the relationships between presidents and Fed chairs can be complicated. President Jimmy Carter appointed Fed Chair G. William Miller to head the Treasury in 1979 after serving only one year as chairman — a move that Fed historians generally view as the closest a President has ever come to firing the head of the central bank. And according to Bob Woodward's biography of Alan Greenspan, the former Fed chairman was prepared to remain on the Fed board after his term expired if he was not re-nominated by President Clinton in 1996.
Calabria said that, in Yellen's case, she may be more likely to stay on the board than other Fed chairmen in the past. She has spent much of her career on the Federal Open Market Committee, but has also served more secondary roles, and may even welcome stepping out of the spotlight and collaborating with the new chairman if Trump makes the right (or wrong) pick.
"She may be more willing to stay than many others because she has spent enough of her career being a supporting character," Calabria said. "The irony, of course, is that if it's somebody she respects, she's probably more likely to stay, because I think she'll feel like she can work with that person, even as a member of the board."
Conti-Brown said having Yellen or Fischer stay past their chair- and vice chairmanship terms comes at a cost to the credibility of the Fed as an apolitical institution, which is a reason to leave.
But it is a sort of "nuclear option," he said, to be deployed only if Trump's picks are truly unqualified. The onus, he said, is on Democrats in the Senate and any Republican defenders of the Fed's independence to choose their battles, which means allowing qualified nominees to serve in order to ensure that unqualified nominees do not.
"This is going to be hard to hear for those who want to oppose everything coming out of the Trump administration, but this is not your usual partisan bickering," Conti-Brown said. "It's a question about whether we are going to have a monetary policy that is insulated from the 24-hour news cycle. The insulation will wear very thin indeed, depending on how Trump uses his appointment power."