Federal Reserve Chair Janet Yellen during a news conference in...

Federal Reserve Chair Janet Yellen during a news conference in December in Washington. Credit: Andrew Harrer

The economy is in good shape — phenomenal shape, really. The labor market is nearing full employment, inflation’s mild, and Wall Street bulls are running. So who deserves the credit — President Donald Trump or his predecessor, Barack Obama?

In a Washington Post/ABC News poll released Jan. 21, Obama won, 50 to 38. Surprise, surprise: These percentages correspond closely to Trump’s approval and disapproval ratings.

The pollsters should have offered a third choice. If personal responsibility for prosperity belongs to anyone, it would be the cerebral economist who on Wednesday presided over the last Federal Reserve meeting of her term as chair: Janet Yellen.

Of course, presidents matter. And to the extent they do, Obama deserves more props for the economy than Trump, because the positive trends got started under his administration. Trump’s tax cuts and regulatory reforms may constitute the magic formula he claims, but, for better or worse, they have not yet taken full effect.

However, Yellen, and the central bank, set the most important prices in the world: U.S. interest rates. Therefore the Fed generally influences the economy more directly than the president and Congress do; this was especially evident during Yellen’s 2014-2018 term, when partisan gridlock on Capitol Hill prevented elected officials from launching major policies until the tax cut in December.

In fact, Obama’s most consequential economic decision may have been to appoint Yellen in 2014, after reappointing her predecessor, Ben Bernanke, in 2010.

Yellen would be the first to credit Bernanke, and the Treasury Departments of George W. Bush and Obama, with effective crisis management during the 2008-2009 crash — without which we might not even have a recovery to argue over. As a board member of the Fed, Yellen supported Bernanke’s use of unconventional recession-fighting policies, including a near-zero interest rate and multitrillion-dollar bond-buying operation.

The first woman to chair the Fed faced no shortage of skeptics who called for a relatively early end to the Fed’s extraordinary easy-money policies, on the plausible grounds that they created a risk of asset bubbles and other capital-market distortions.

Yellen stayed focused on the labor market, consulting data beyond the headline unemployment rate. It was not until December 2015 that she concluded the market was tight enough to warrant higher interest rates, and the Fed has boosted them only gradually since.

Yellen’s approach has been vindicated: Simply put, you can’t argue with success. The unemployment rate of 4.1 percent is a 17-year low; the annual core inflation rate is nearing the Fed’s target of 2 percent, with no sign of significantly exceeding it; wages rose 2.6 percent last year.

Trump considered keeping Yellen on for a second term. His decision not to do so could only have been political, not merit-based. She was a Democrat, Obama hired her.

Fortunately, Trump’s choice, Republican Jerome Powell, is one of his best appointments: picked for the Fed’s board six years ago as a gesture of bipartisan comity by Obama, Powell is a veteran of both Washington and Wall Street who generally backed Yellen’s policies.

The question is what happens when growth cools, which is bound to happen sooner or later. It would not be in Trump’s nature to accept responsibility for a souring economy, even if it reflected a crisis of his own making — a trade war, say, or a military clash with North Korea.

More likely, he would look around for someone to blame, and the Fed chair would be an all-too-convenient scapegoat.

If and when that happens, we’ll find out whether Powell is made of the same stern stuff as Yellen. The effectiveness of the central bank, like that of the judiciary, depends on its political independence.

Charles Lane is an editorial writer with The Washington Post.


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