A Preview of the Fed Under Trump

John Taylor, a former Treasury official in the Bush administration, is a top candidate to replace Fed chair Janet Yellen.

Donald Trump’s surprise victory may radically alter the future path of U.S. monetary policy. Yields on long-term Treasury bonds have jumped by more than one-half percentage point since the election. In addition, the markets are pricing in possibly two or three interest rate hikes by the Federal Reserve in 2017.

Although Trump was an early supporter of Fed chair Janet Yellen (likely because real estate developers love low interest rates), he turned critical in the latter stages of the campaign and adopt-ed the Republican line that the Fed’s low-rate policy had distorted financial markets. Trump suggested that Yellen, a Democrat, had kept rates low to help the campaign of Hillary Clinton.But President Trump will not have to suffer Yellen’s chairmanship for long. Her term ends by February 2018, and vice chairman Stanley Fischer’s term ends about four months later. Plus, two of the seven seats on the Board of Governors are now vacant, ready for Trump’s choices. Those choices are important because all seven Fed board members (along with a rotating group of five regional bank presidents) vote on the Federal Open Market Committee, which dictates the Fed’s interest rate policy (see Why Interest Rates Matter).

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."