On this day, spare a thought for a liberal Democratic grandmother who has spent a lifetime in public service at the highest levels of government.
The Democrats lost the White House and failed to regain control of both the Senate and the House of Representatives. There are 35 Republican governors. So what power center in American life is occupied by a Democrat? For now, it’s only the Federal Reserve.
Janet Yellen, an anxious nation—and the global financial system—turns its eyes to you.
In the past several years, since the onset of the financial crisis, the U.S. Federal Reserve has occupied an outsize role in economic affairs. Under Ben Bernanke, a Republican reappointed by a Democratic president, the Fed deployed its balance sheet to bail out big insurers and Wall Street firms, then cut interest rates to zero and held them there for years. Next, when a Republican Congress refused to sign off on more fiscal stimulus, the Fed engaged in several rounds of quantitative easing to boost the U.S. economy—and, by implication, the global economy. Indeed, for much of the Obama era, the Fed—and its $4 trillion balance sheet—was the only game in town when it came to trying to goose economic activity.
Now, Yellen finds herself in a very odd and vital place. Come next January, the 70-year-old grandmother with the Brooklyn accent will be literally the only Democrat in Washington with any authority. And she’ll be the only person capable of responding to global financial turmoil and crises that crop up. (If you think the president-elect will assemble a crack team of forward-thinking economic policy types, I’ve got some Trump steaks to sell you.)
The sickening drop in the futures markets in the immediate wake of Tuesday night’s Trump victory—Dow futures fells more than 700 points—sent minds and hearts racing back to the financial crisis. While the quick rebound Wednesday morning should soothe some frayed nerves, the fact remains that this is a dangerous world full of potential disruptions: Brexit, a potential slowdown in China, the troubles of Germany’s largest bank. The financial system is extremely safe and sound now, in part due to Dodd-Frank. (Only five tiny banks have failed so far this year.) But guess what? Trump and his allies in Congress want to repeal Dodd-Frank. And there are already hints of problems in student and auto borrowing.
Consider Yellen’s position. She must continue to do her job as if nothing has changed. All year, the Federal Reserve has been examining the data on employment and inflation, trying to figure out when to raise rates—all while denying up and down that political conditions factor into the decision-making. (The expectation is that the Fed will raise rates at its meeting in December.) She has to be prepared to respond to any crisis that crops up in the next two months and to be the sole first responder; lame-duck administrations are really bad at dealing with late-breaking crises. And she must prepare for a disruptive new normal. During the campaign, Trump lambasted Yellen for keeping interest rates low, accusing her of trying to benefit President Obama and Hillary Clinton. We literally have no idea what Trump’s fiscal policy will look like. Oh, and she’s now supposed to work with a president who featured her, along with George Soros and Goldman Sachs CEO Lloyd Blankfein, in an anti-Semitic closing ad.
Federal Reserve chairs serve four-year terms, which are designed to extend between presidential terms. Yellen was appointed in 2014, and her term is up in January 2018. Of course she won’t be reappointed by Trump. But we should all hope she digs in her heels, resists calls to resign, ignores the inanities the new administration will send her way, and serves out her term.
She is literally the last Democrat wielding power in Washington.