There are likely few people in Washington who long for November 9th more than Janet Yellen.
She’s spent recent weeks fending off accusations from Donald Trump that the Fed has become politicized under Yellen’s watch, and that the central bank’s interest-rate policy is being guided by political considerations rather than economic ones.
On Wednesday, Republican Congressman Scott Garrett, R-N.J., got in on the act. During a hearing in front of the House Financial Services Committee, Garrett told Yellen, who was testifying, “Whether you like it or not, the public increasingly believes that Fed independence is nothing more than a myth.” Garrett also suggested that there may be something to the perception that Fed governors have a “cozy” relationship with the Obama Administration and the Clinton campaign.
Garrett’s central complaint was the conduct of Fed Governor Lael Brainard, who has donated $2700 to the Clinton campaign, and is reportedly being considered as a possible candidate for Treasury Secretary or another position in the Clinton Administration. Garrett insinuated that this conflict lead Brainard to vote to keep interest rates low, which some analysts believe helps Clinton, because such an action would support economic growth and potentially benefit a candidate from the incumbent party.
Garrett was incredulous that “a member of the Board of Governors can have direct negotiations with either political party,” and asked Yellen whether she “sees this a conflict.”
Yellen stumbled in her answer, saying that she would have to consult Fed lawyers, but that she has “never seen politics being brought to bear on the part of any of my colleagues.”
Setting aside the question of whether a single Fed Governor really has the ability to affect a presidential race, the fact that Janet Yellen was unable to give an opinion on whether she thought Brainard’s relationship with the Clinton campaign represents a conflict of interest is troubling. As steward of the Fed’s reputation, it’s reasonable to expect that she at least consider such questions.
Congress has taken steps to make sure that the Federal Reserve is insulated from politics, like stipulating that the Federal Reserve is self-funding, and that its budget is not determined by Congress. In addition, Fed Board Board members serve staggered 14-year terms, (Fed Chairs serve in that specific role for 4-year terms) making sure that no one president can radically change the composition of the central bank.
Furthermore, because the interest-rate setting board of the Fed, the Federal Open Market Committee, is made up of twelve members, it’s doubtful that even if one member were being swayed by politics, that this would be enough to actually change Fed policy. At the same time, there’s reason to be concerned about even the appearance of the politicization of the Fed, as public confidence in the institution is essential to its ability to conduct effective policy making.
