What’s next for U.S. monetary policy

It is widely anticipated that chair of the Federal Reserve Board Janet Yellen will announce an interest rate increase this week during the board’s last meeting of the year. Binyamin Appelbaum, economic reporter at The New York Times, also expects discussions about a shift in monetary policies with the next presidential administration. Appelbaum joins Alison Stewart.

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    On Tuesday, the Federal Reserve board begins a two-day meeting, its last for 2016, and it is widely anticipated that Fed Chair Janet Yellen will announce an interest rate increase. Also at play is the transition from the Obama administration to the Trump administration and what that might mean for monetary policy moving forward.

    Joining me from Washington, D.C. for some insight is Binyamin Appelbaum of "The New York Times".

    The Fed has signaled it plans to raise interest rates. Why?


    They're ready to raise interest rates for the first time in almost a year because they think the economy is doing better. We've had slow but steady growth for quite some time now. A lot of people have found jobs, the employment rate unemployment rate is down to 4.6 percent, and the Fed thinks the economy is ready to handle slightly higher interest rates.


    Fed Chair Janet Yellen said this decision had nothing to do with the election. But going forward, obviously, monetary policy is going to have a lot to do with the Trump administration and its economic policy. What are some of the unknowns out there?


    Yes, that's right. This is sort of the last Fed decision that probably won't be influenced by Donald Trump. You know, it reality has complicated the Fed's outlook. The Fed was expecting before the election that growth would remain slow and steady and there are now at least two other options. One is Donald Trump and congressional Republicans succeed in passing legislation such as tax cuts or infrastructure spending, that boosts economic growth and that jolts us out of this sort of prolong malaise that the economy has been in.

    And the other possibility is that rapid change turns to be a bad thing and that the economy tips backwards into potentially a recession. The Fed now needs to be much more mindful of both of those possibilities. The degree of uncertainty has really increased.


    When Donald Trump was campaigning, he said during the first debate, some pretty harsh words about the Fed, accusing it of being political and trying to keep interest rates down to benefit President Obama's legacy. And then he said, quote, in the first debate, "We have a Fed that is doing political things. This Janet Yellen. The Fed is doing political", that said in context.

    For the record, let's fact check this. The Fed is not a political organization, correct?


    The Fed is an independent agency. Its members are certainly appointed by the president and confirmed by Congress. But they are intentionally insulated from short term political pressure and there is no evidence that any of their decision-making is the result of political pressure.


    Fed Chair Janet Yellen says she will remain until the end of her term, which is 2018. Donald Trump, though, will have opportunity to make appointees to the board of governors, right?


    That's right. He'll immediately be able to fill two seats, the Obama administration, and nominated two people to the board of governors. But congressional Republicans refused to hold hearings on those nominations, so those two vacancies are still there.

    The interesting question is who he wants on the Fed. You know, Donald Trump is by nature and by his long career, a borrower — the kind of guy who generally would be thought to favor lower interest rates. He now leads the party of lenders, the Republican Party, which has long thought that fiscal and monetary policy should be a little bit tighter. And that would tend to argue for the type of governor who might want to raise interest rates a little more quickly.

    So, how that balance plays out between who Donald Trump is as a person and some of the political imperatives of leading the Republican Party is going to be very interesting to watch.


    Binyamin Appelbaum from "The New York Times" — thank you so much.


    My pleasure.

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