What Former Fed Chair Janet Yellen Says . . .

Janet Yellen warns of dire consequences of drastic Fed rate cuts

“Former Fed Chair sends stern message on economy,” Fed

“There have been episodes in the past that we know about now where U.S. presidents have attempted to pressure the chairs of the Federal Reserve, Yellin said in a CNBC interview.

She said the most prominent example was Richard Nixon “exhorting” Federal Reserve Chair Arthur Burns to hold interest rates down before the 1972 election.

‘And what that ushered in the United States was a period of stagflation, weak growth high unemployment, high inflation. And it really took Paul Volcker to come in and it cost us a very deep recession to anchor inflationary expectations, to get them down,’’ Yellen said, adding that such “consequences are very poor for the economy.

In addition, Yellen said the politicization of the central U.S. bank ‘undermines the global role of the dollar and the willingness of foreigners to invest in the United States.’

Here’s what Yellen says is crucial for a healthy American economy:

‘What’s really important, though, is when an individual is…a Fed chair, that they have the capacity and willingness to make fact-based judgments and to pursue goals that are congressionally mandated, namely price stability and maximum employment. That becomes their job.’

She cited the current state of the economy as positive, with inflation coming down ‘close to the Fed’s 2% goal, the labor market remaining strong at 4.1%.’

Yellin said she was vehemently opposed to the concept of a ‘shadow’ Fed Chair, a notion that the Trump team has been floating to backstop Powell before his term as chair ends in May.

Adding . . . “‘I think this is one of the dangers President Trump is doing, insisting that he will only put in place a Fed chair who believes in lowering rates. It ‘impairs’ the credibility of Powell’s successor with the markets and creates a problem for them, right from the outset, where people will expect they’re political.’”

The next FOMC meeting is July 29-30, and the panel is expected to hold rates steady. Some Fed watchers are looking at the September FOMC meeting for the next rate cut, pending the outcome of tariff inflation and the unemployment rate.