Donald Trump, who has turned the personal attack in the notoriously partisan world of US politics into an art form, has been counterpunched by the chairman of the Federal Reserve, Janet Yellen.
Dr Yellen defended the integrity of both herself and the US central bank before Congress on Thursday when she told the Joint Economic Committee: “I was confirmed by the Senate to a four-year term, which ends at the end of January 2018, and it is fully my intention to serve out that term.”
That comment in isolation mightn’t sound like fighting words, but in the ostensibly non-political world of central banking it rang loud. And it was what the market wanted to hear.
The Fed chair was responding to accusations of bias by Mr Trump that interest rates were on hold to aid the Democrats made during the election campaign.
“They’re keeping rates artificially low so that Obama can go out and play golf after January and say that he did a good job,” Mr Trump said.
Dr Yellen, he said, was “doing political things” and “being more political than Secretary [Hillary] Clinton.”
Bankers and economists were heartened by Dr Yellen’s remarks. They fear the prospect of political interference in the working of the finance markets as something that would break down the trust that helps investors commit funds.
“Any suggestion indicating that the integrity of the market is being undermined would be a major concern,” an economist told The New Daily.
Dr Yellen’s commitment to see out her term was also significant as Mr Trump had said her political allegiances made her unsuitable in his view.
“She is not a Republican. When her time is up I would most likely replace her,” he said.
That had led to speculation that Dr Yellen would resign following Mr Trump’s victory and her commitment to serve out her term is seen as another confirmation of independence.
In recent decades there has been little nexus between Fed chairs and party politics. President Bill Clinton twice renominated Republican Alan Greenspan to the position while Barak Obama nominated a Republican, Ben Bernanke, followed by the Democrat, Dr Yellen.
The lady’s not for turning
Any pressure Mr Trump puts on the Fed to conform to his policy wishes may be counterproductive, said Alex Joiner, chief economist with IFM Investors. “The Fed won’t want the markets to think it is responding to political pressure.”
While Mr Trump might have called for higher rates during the campaign he probably should be careful what he wishes for. Dr Yellen raised expectations the Fed would hike rates next month.
“The evidence we’ve seen since we met in November is consistent with our expectation of strengthening growth and an improving labour market,” she said.
“I do think the economy is making very good progress toward our goals.”
Mr Trump has a hugely ambitious program of $1 trillion in infrastructure spending and “his tax cut plans will cost $US5.6 trillion,” Dr Joiner said.
Funding plans on that level will push up interest rates as borrowings rise, making the bills harder to pay.
Mr Trump will have the possibility of making the Fed more to his political liking when he takes over as President in January and assumes the right to appoint two new directors to two vacant positions.
While to Australian ears, Mr Trump’s claims of partisanship among appointed officials may sound extreme, Dennis Altman, professorial fellow in Human Security at La Trobe University, has another perspective.
“Americans are just more honest about it than Australians,” Prof Altman said.
“Americans acknowledge that judges, for example, are political appointments while we have this myth that they don’t have politics.”
Dr Lauren Rosewarne, senior lecturer in Politics at Melbourne University, said given the context of the US election, she believed there was a “gendered element” to criticism of Dr Yellen.
“You saw tee shirts in the campaign that were anti Hillary, not only because she was a Democrat, but because she was a woman. There would be elements in a hugely conservative group that are opposed to a woman holding the purse strings.”