WASHINGTON — When President Trump nominated Federal Reserve Gov. Jerome Powell to lead the central bank, many observers presumed that would soon create another vacancy on the board once the current head, Janet Yellen, resigns after her term as chair expires in February.
But there are reasons Yellen might stay on, at least temporarily.
The chair is chosen by the president from among the governors of the Fed board, so each has a separate term for their chairmanship and their underlying board membership. Yellen’s term as chair expires in February, but her 14-year term as governor does not expire until 2024. If she wanted to stay on the board, she is free to do so.
The question is whether she wants to — and even potentially whether Powell or the administration might ask her to stay on.
On Thursday, Trump had only have positive things to say about Yellen, calling her a “wonderful woman who’s done a terrific job” and saying they have “been working together for 10 months, and she is absolutely a spectacular person.”
Yellen has said in the past that she intends to serve out her term as chair, but has repeatedly declined invitations by reporters and members of Congress to expound on whether she would be interested in staying on the board as a governor. But she also has not closed the door on that possibility.
“I haven’t made any decision about the future,” Yellen said in December. “I recognize I might or might not be reappointed. It’s a decision that I don’t have to make and don’t have thoughts on at this time. And, as you said, I recognize too that I could stay on as a board member, and that’s a decision for another day.”
The Fed is nothing if not a tradition-bound institution, and Paul Forrester, a partner with Mayer Brown, said the tradition is for former central bank heads to not only retire from the agency but not comment on or interfere with Fed actions as private citizens.
“The market view is, like immediate past [chairs], she would be expected to ride off into the sunset and stay out of it,” Forrester said. “Alan Greenspan has spoken up occasionally, but otherwise Alan Greenspan and Ben Bernanke have kept their mouths closed on Fed policy matters since they were asked to step down, and I would expect Yellen to do the same.”
In the 104-year history of the central bank, only one former chairman has stayed on past his chairmanship. In that case, Mariner Eccles remained on the Fed board after his term as chair expired in 1948 as part of a deepening dispute with President Harry Truman over postwar monetary policy.
Ian Katz, an analyst with Capital Alpha Partners, said that the Eccles model, in which he feared his successor might do damage to the institution, wouldn’t apply in this case. By all accounts, Yellen and Powell have a good working relationship and share mutual respect, so she would have no reason to think that the Fed is in anything but capable hands, Katz said.
“One of the reasons someone in Yellen's position might want to stay on the board is if she thought her successor was going to destroy the place and her staying could perhaps prevent that from happening,” Katz said. “That's not the case with Powell. Though he's more deregulatory-minded than Yellen is, I doubt she fears that he's going to ruin the Fed or undo every sensible rule that's on the books.”
But Oliver Ireland, partner at Morrison & Foerster and former Fed official, said it is “possible” Yellen would stay on if Powell asked her to, and he might be motivated to do so because there are so many vacancies on the board already.
“I would think that if she stayed, it would be just to provide an extra set of hands to do things,” Ireland said. “The board does a lot of stuff. It is helpful to have governors who can look after those things.”
For Trump, filling the remaining three vacancies on the board has been an exacting process, and having Yellen stick around would mean one less nomination to send to Congress and one less vacancy while they wait. The board hasn't had a full complement of governors since 2013, and for much of the past decade there have been vacancies either stalled in Congress or unpicked by the administration.
If Yellen leaves in February and new nominees are not in place or immediately pending, the challenges of a three-person Federal Reserve Board begin to mount, making it harder to hold informal meetings or conduct committee business. In a conference call following Powell's nomination Thursday, a senior White House official declined to elaborate about the timing of future appointments to the board, saying only that they would be made "in due time."
Ireland said Powell might ask Yellen to stay on to help keep things running smoothly until reinforcements arrive.
“I would think there would have to be a discussion between [Powell] and [Yellen] about that issue,” Ireland said. “He is, after all, the chairman, and … maybe there’s an issue about filling those other slots, and it might be for a limited period of time until you got a replacement in.”
Forrester agreed, saying that if Yellen were to stay on, it would likely be on an interim basis and with the understanding that she would depart once additional nominees are confirmed. While Trump may have had positive things to say about her — and she was in close competition for renomination — it is more likely that a new raft of Trump appointees find their way to the Fed in the coming months.
“It was pretty clear that she was a serious candidate until very recently,” Forrester said. “But just given history and politics, I’d say it’s pretty unlikely" Yellen stays on. "There’s a pretty robust competition for the next nominees, so there’s no shortage of candidates.”