Yellen and Draghi Both Defend Post-Crisis Financial Regulation

Xavier Trudeau
Août 28, 2017

Trump has said he is considering Yellen and his top economic adviser, Gary Cohn, for the post.

Yellen used her high-profile podium to give a robust defense of the regulations put in place under the Obama administration in the aftermath of the financial crisis. President Donald Trump is now assessing whether to reappoint her when her term expires in February.

Yellen Fed is not on the same economic page as the Trump administration.

The Federal Reserve has a dual mandate to promote full employment and keep prices stable.

Trump's approach, however, contradicts this view: the president has said that Wall Street banks should not enjoy bailouts at the expense of taxpayers whatsoever, and the "too big to fail" banks should take on risks as their sole responsibility, as the CHOICE Act - a GOP replacement for the failed Dodd-Frank - allows such banks to collapse. "Banks are safer", she said in a portion of her prepared testimony.

Yellen said that "any adjustment to the regulatory framework should be modest and preserve the increase in resilience", however, Trump is openly aiming for radical reform aimed at bolstering the productive forces of the U.S. economy, albeit it might become a high-risk environment. If the lessons of the last crisis were remembered "we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly". Trump has promised to dismantle Dodd-Frank and Treasury Secretary Steven T. Mnuchin has proposed a major rollback.

Trump has waffled on whether he would renominate Yellen to the post.

Cohn might have complicated the choice of a new Fed chair with his criticism of Trump's Charlottesville response.

"Starting next week, the president's agenda and calendar is going to revolve around tax reform", Cohn said in an interview with Financial Times published Friday.

"We have lost the rhetoric on trade in terms of explaining to those who benefit why they do, such as cheaper products, while all of the focus has been on those who have lost", said Gita Gopinath, professor of worldwide studies and economics at Harvard University and financial advisor to the chief minister of the Indian state of Kerala. This as President Donald Trump moves to slash some of those very same regulations.

"Renegotiating NAFTA and protectionist measures against China will not save jobs", University of Pennsylvania professor Ann Harrison said, arguing that the decline in manufacturing jobs was due to labor-saving management and technologies. But Cohn told the Financial Times that he chose to stay on in the administration because he did not want to be forced out by neo-Nazis.

"But I also feel compelled to voice my distress over the events of the last two weeks", he said. "We must all unite together against them".

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