If Donald Trump is stomping into Washington like a Wild West bandit, a trail of slain opponents in his wake, then the fearless gunslinger standing on a windswept street at high noon waiting to face him down is Fed Chair Janet Yellen.
Among the many supposedly inviolable campaign norms Trump broke as he barreled toward the White House was a prohibition against criticizing the sitting Federal Reserve chair. “When her time is up, I would most likely replace her because of the fact that I think it would be appropriate,” the Donald said, citing the fact that she wasn't a Republican. (Fed chairs can only be removed “for cause,” i.e., when real wrongdoing has been found.)
On Thursday Yellen planted her feet and, in characteristically bloodless Fed-speak, promised not to be moved. “I was confirmed by the senate to a four-year term which ends at the end of January, 2018,” Yellen told Congress's Joint Economic Committee when asked whether anything might lead her to step down in the coming year. “It is fully my intention to serve out that term.”
No one's going to catch Yellen overstepping her painfully neutral bounds as Fed chair, so go ahead and imagine her spinner her pistol and jauntily holstering it at this point. If that's your thing.
Promising to replace Yellen hasn't been Trump's only broadside.“We are in a big, fat, ugly bubble and we better be awfully careful and we have a Fed that's doing political things,” Trump said during the campaign. The broader implication that the Fed has kept interest rates at historic lows in order to benefit the economy is, well, yeah, basically the point.
He has also repeatedly suggested, since at least 2011, that the Fed's low rates would lead to “record high inflation in the near future.” Which, he added for good measure, “would be devastating for economic growth but good for real estate.”
In reality, to use a bit of Fed speak, inflation continues to run below its long-term target of 2 percent.
Despite all the provocation, Yellen hasn't taken the bait. On the theme of political interference, she reiterated her usual line: “It’s critically important that a central bank have the ability to make judgments to pursue those goals.” She also pushed back on Trump's proposal to “dismantle” Dodd-Frank provisions – which, she said, were “important in diminishing the odds of another financial crisis.”
So this is how the Trump-Yellen duel begins. Yellen will play by the rules. Trump will fire from the hip.