WASHINGTON — Presumptive Republican presidential nominee Donald Trump said Thursday that while he respects and agrees with Federal Reserve Chair Janet Yellen and her policies, he would replace her with his own pick for purely partisan reasons if he wins the White House.
"She's a very capable person. People that I know have a very high regard for her," Trump said during an interview with CNBC's "Squawk Box." "But she's not a Republican. When her time is up, I would most likely replace her because of the fact that I think it would be appropriate."
Trump has made similar, if less expansive, comments about Yellen in the past. In an interview with Fortune magazine published last month, Trump said that Yellen had done a "serviceable" job as Fed chair but that he would "be more inclined to put other people in" when her term as chair expires in January 2018.
But such a move — like most everything else about Trump's candidacy to date — would be a significant departure from recent tradition. President Bill Clinton, a Democrat, reappointed Republican Alan Greenspan as Fed chair, while President Obama renominated Republican Ben Bernanke during his tenure in office before he sought retirement at the end of his second term.
Trump's rationale for dropping Yellen also raised eyebrows, considering that he said he agreed with her policies.
"You make a decision based on the qualifications of the person — especially the chairman of the Federal Reserve Board, which is one of the most important economic policy position in the United States, if not the world," said Dennis Kelleher, president of the public interest group Better Markets. "For somebody who aspires to be president to say they would … make a decision based purely on party affiliation would unwisely politicize the Fed to a degree unseen for many decades, if ever."
During the interview, Trump also repeated his pledge to revamp the Dodd-Frank Act, blaming regulators for slow economic growth.
"Dodd-Frank has to be — has to be either eliminated or changed greatly," Trump said. "I will tell you, I have so many friends who are very good business people, and it's impossible for them to do business with the banks. The regulators are running the banks."
But it was Trump's comments on the Fed that drew the most notice.
Justin Schardin, acting director of the Bipartisan Policy Center's Financial Regulatory Reform Initiative, said that politicization of the Fed has been evolving steadily for some time, just as institutions like the Supreme Court have been evolving into partisan bodies.
The Senate has also been increasingly wary of political concerns in filling open Fed Board seats. Jeremy Stein, a Democrat, and Jerome Powell, a Republican, were confirmed together in 2014. The two vacancies now open on the Board have been stalled by Senate Banking Committee Chairman Richard Shelby, R-Ala., because of the ongoing vacancy of a Vice Chairman for Regulatory Affairs. But Schardin said the Fed's nonpartisan structure — as opposed to, for example, the Securities and Exchange Commission or the Commodity Futures Trading Commission, has helped it maneuver in ways that those other regulators have not.
"Unlike some financial regulators, the Fed is nonpartisan, and that has helped it avoid some of the dysfunction that we've seen at agencies that are explicitly partisan," Schardin said. "There is a long history of playing down partisanship with Fed appointments."
Presidents appoint the Fed chairs when their four-year terms expire — terms that are staggered so as to not coincide with presidential terms. Richard Grossman, professor of economics at Wesleyan University and financial history expert, said that the structure of the Fed is designed to distinguish it from other executive offices.
The long, 14-year terms of Fed governors and the inclusion of presidents of regional Fed banks (who are elected by member banks in their region) on the Federal Open Market Committee are meant to insulate it from the political whims of the President or Congress.
"The point is that you can't really change the balance very quickly, and with the presidents of the Federal Reserve Banks who sit on the FOMC, they aren't appointed at all by Washington," Grossman said. "That's part of the institutional structure of the Fed, is to make it somewhat … resistant to overtly political stuff like this."
Nonetheless, presidents have used their influence to sway or replace Fed chairs in the past, and it usually is to send a message. The reappointments of Greenspan and Bernanke were meant to assuage financial markets wary of further upheaval in times of stress, Grossman said.
"Clinton reappointed Greenspan to make himself more credible, because Greenspan had a lot of credibility with the financial market … and the financial community was not so wild about Clinton," Grossman said. "For the most part, presidents have prized Fed chairs that haven't been particularly ideological."
Mark Calabria, director of financial regulation studies at the Cato Institute, said that Trump is similarly trying to send a message with his willingness to dump Yellen in favor of a Republican to be named later, and that that message is to the base of the party he now controls.
"I suspect that part of this is a targeted message to Republicans," Calabria said. "He needs to do things now to show he's a true Republican. There's a small base of passionate people in the Republican Party that care about monetary policy."
Grossman said that, like Supreme Court appointees, Fed chairs tend to have a mind of their own because they do no serve at the pleasure of the president. This sometimes causes headaches for the president, as was the case when President Jimmy Carter appointed G. William Miller to chair the Federal Reserve in 1978. Miller's consistently dovish monetary policy positions and unwillingness to take on "stagflation" drove Carter to appoint him to head the Treasury (which Miller accepted) in 1979, allowing him to install Paul Volcker at the Fed.
For Trump, the most important issue in selecting a nominee would likely be loyalty to him rather than to calm or convince markets, which could yield problems of its own. By contrast, if he were to reappoint Yellen, it could provide some of the reassuring balm to markets that other presidents have used, Grossman said.
"The thing is, when you appoint someone to be the chair of the Fed, once you appoint them and they've been confirmed, you lose all leverage you had with them," Grossman said. "Someone who is committed to getting behind Trump's economic policies may not be someone who the financial community and financial markets are all that comfortable with."
Calabria said that recent history of chairs receiving the nod from presidents of opposing parties is the exception, not the rule. And ultimately, Yellen is only one vote on an FOMC that is otherwise filled with Obama appointees, so if Trump were to win and have his nominee approved, that nominee would still have to wrangle a majority of votes to have their priorities realized.
"What he's doing is not unprecedented, it's not unusual, it's no more political than the Fed has ever been," Calabria said. "At the end of the day, he says crazy stuff all the time. This is probably the least crazy thing he's said all week."