Yellen to Trump: Don't expect a flip-flop on reforms

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American economist Janet Yellen delivered a message to President Donald Trump on Friday, making it clear that if he re-nominates her as Federal Reserve chair she will not turn her back on the raft of US financial reforms that Republicans want to roll back.

Her speech to the world’s top central bankers in Jackson Hole, Wyoming, comes at a time when the chaos at the White House may make it more likely that she would be appointed to serve another four years to head the US central bank.

Yellen, whose term ends in February, warned that “for some” memories of the 2007-2009 financial crisis may be fading, and she said that only “modest” adjustments could be made to regulations meant to protect the economy from runs on banks and other financial panics.

(From left) Haruhiko Kuroda, governor of Bank of Japan, Janet Yellen, chair of Board of Governors of the Federal Reserve System, and Mario Draghi, president of the European Central Bank, at the Jackson Hole economic symposium, sponsored by the Federal Reserve Bank of Kansas City, in Moran, Wyoming, US, on Friday, Aug. 25, 2017. /VCG Photo

President Trump and congressional Republicans say many of the Obama-era rules go too far in choking off credit and burdening firms with unnecessary compliance.

“Yellen’s passionate defense of the post-crisis tightening of financial regulation isn’t going to go down particularly well at the White House,” said Paul Ashworth, chief US economist at Capital Economics, in Toronto.

Yet with Trump’s regulatory, tax and infrastructure policy plans so far delayed, and the White House struggling to fill several key posts, Yellen, a Democrat, may represent the president’s best shot at ensuring stability at an institution critical to running the economy smoothly.

While Trump may disagree with Yellen’s big-government stance on regulatory policy, he is more aligned with her track record of keeping rates low to get Americans back to work.

In addition, she said she was open to some of the key changes that the administration, and its nominee as Fed vice chair for regulation, Randal Quarles, want to pursue.

Wall Street rises modestly following Yellen speech

US stocks rose slightly on Friday, lifted by high-dividend-paying stocks, after Yellen’s speech did not comment on the path of interest rate hikes for the central bank, which sent US Treasury yields lower.

“The worry still remains about the 10-year (benchmark Treasury note) rate, still below 2.2%,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.

“That is kind of a concern and it doesn’t surprise me you are starting to see stocks hang in there only because everybody is searching for yield.”

Yellen’s speech focused on financial stability while giving no hint on monetary policy, leaving the prospect of more interest rate hikes up in the air.

Meanwhile, a speech by European Central Bank chief Mario Draghi gave little guidance on tapering the bank’s bond holdings and heralded globalization over protectionism.

“If anything, both with Draghi and Yellen, the big fear from investors was a more hawkish stance on monetary policy,” said Jeffrey Cleveland, chief economist at Payden & Rygel in Los Angeles. “Those fears were overblown. You didn’t have that hawkish surprise.”

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Source(s): Reuters