THE FUTURE OF THE FED

Uncertainty about the tenure of Federal Reserve Chair Janet Yellen is magnifying questions about the future direction of interest rates and monetary policy, which could have far-reaching implications for the financial markets and reaffirm the wisdom of holding gold.

After meeting with Yellen on October 19, President Trump kept the markets guessing as to whether he will re-nominate her to another four year term as head of the U.S. central bank. Ms. Yellen’s term expires on February 3, 2018.

The president’s public statements about Yellen have fluctuated drastically. In September 2016, Trump, then a presidential candidate, told CNBC Yellen should be “ashamed” for trying to help President Obama by maintaining low interest rates. “It’s staying at zero because she’s obviously political. She’s doing what Obama wants her to do,” Trump claimed. This past September, President Trump was more complimentary. “I like her and I respect her,” he told The Wall Street Journal, but added he had not yet decided whether to choose her for another term as chair of the central bank.

Since Trump became president, the Fed, under Yellen, has twice raised its overnight bank lending rate, known as the fed funds rate, and is widely expected to hike again in December.
Trump has interviewed several other candidates for the top job at the Federal Reserve, including former Fed governor John Warsh who has been highly critical of Yellen, attacking the Fed for using a “make-it-up-as-you-go-along approach” that results in an overly flexible money policy, and Stanford University economist John Taylor who has urged the Fed to set substantially higher benchmarks for interest rates.

An upward recalibration of interest rate policy could undermine the stock and bond markets and send investors in search of safe havens like gold.