By Nick Timiraos 

President Trump's pique over the Federal Reserve's interest-rate increases this summer stoked fears about a looming blowup between the White House and the central bank. His nominees to the Fed's board show his administration isn't spoiling for a fight.

The selections also illustrate how the man he named as Fed chairman, Jerome Powell, has consolidated power in short order and ahead of delicate policy decisions he could confront soon.

The primary way a president can influence Fed policy comes through nominations to its seven-seat board of governors. Mr. Trump has had the rare opportunity of filling six slots early in his term. Meantime, the president -- in tweets, a television interview and meetings with business leaders and donors -- has openly expressed annoyance with the Fed's short-term rate increases.

His selections, however, have mostly been non-ideological, pragmatic policy experts who are well regarded within the Fed rather than central bank antagonists likely to push for a dramatic course change.

The latest to fit this mold is former veteran Fed economist Nellie Liang, Mr. Trump's surprise pick to fill the last of three vacancies on the board.

"If the Trump administration wanted greater direct influence over the Federal Reserve, nominating a well-respected former Federal Reserve staff member would not be the way to achieve that objective," said Lewis Alexander, chief U.S. economist at Nomura Securities.

Mr. Trump's public Fed criticism, the first by a sitting president since 1992, followed central bank officials' signaling they plan to gradually raise rates in coming years to prevent the economy from overheating. The risk of sustained attacks on the central bank could rattle the markets if investors feared the Fed might be pressured into leaving rates too low for too long, fueling inflation. That isn't a problem right now.

Mr. Trump's selections shouldn't have caught anyone by surprise, said Kevin Hassett, the chairman of the White House Council of Economic Advisers. "President Trump has a simple instruction to the team: that we find the best possible nominees," he said.

Mr. Trump's respect for the Fed's independence "is extremely apparent in the caliber of his nominees," said Mr. Hassett. "Everyone on the team in the White House is justly proud of what a great team has been recruited to help run the Fed."

Three personnel decisions since Mr. Powell became chairman in February, including Ms. Liang's nomination, bear his imprint.

Ms. Liang spent 31 years at the Fed until last year, including her last seven overseeing the Fed's monitoring of risks to financial stability, an area Mr. Powell has focused on.

Mr. Powell played a key role securing the nomination of Richard Clarida as vice chairman in April. After the White House passed on another Powell favorite -- John Williams -- for that job, the New York Fed made him their next president. The moves brought two widely respected monetary policy economists into his leadership circle.

Peers on both sides of the aisle have cheered Ms. Liang's appointment, in particular.

"Nellie is an excellent selection by the president. She combines deep experience in crisis times and non-crisis times with remarkable open-mindedness," said former Fed governor Kevin Warsh, who worked in the George W. Bush administration and had been interviewed by Mr. Trump to serve as Fed chairman.

The Fed holds a two-day policy meeting this week in which officials are prepared to raise their benchmark rate to a range between 2% and 2.25%.

While all 12 of the Fed's regional bank presidents participate, just five of them have a vote at any meeting. The Washington-based governors always vote, making them more powerful.

The current episode is in some ways the reverse of the 1980s. Back then, President Reagan was reluctant to publicly criticize Fed Chairman Paul Volcker, who had lifted the benchmark rate to 19% to fight inflation in 1981. But the president's top advisers frequently clashed with Mr. Volcker. They packed the board with governors who outvoted him in 1986 to force a cut in the lending rate the Fed charges banks.

Three of Mr. Trump's picks -- Messrs. Powell and Clarida as well as Randal Quarles, the vice chairman for bank supervision -- have won Senate confirmation. Two are pending in addition to Ms. Liang. They are Kansas banking commissioner Michelle Bowman and Marvin Goodfriend, a Carnegie Mellon University economist who is opposed by Senate Democrats and Sen. Rand Paul (R., Ky.).

Having a board stocked with collegial policy hands will help Mr. Powell navigate difficult decisions over how long to continue raising rates and what to do if inflation remains under control but asset bubbles inflate, as happened before recessions that began in 2001 and 2007.

He also may enjoy a wide base of support from Fed presidents who joined the system when Mr. Powell, in his prior capacity as a governor, served as the board's primary liaison with the reserve banks.

Mr. Trump might still vent about interest-rate increases on Twitter and television. But once his nominees are in place, there will be little else he can do to change the place.

Mr. Powell, working with White House advisers, appears to have dealt himself a strong hand.

 

(END) Dow Jones Newswires

September 22, 2018 13:39 ET (17:39 GMT)

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