US Federal Reserve meet to close in shadow of Trump nomination

WASHINGTON: The Federal Reserve was due Wednesday to make its latest pronouncements on monetary policy but the meeting was overshadowed by President Donald Trump's looming replacement of Fed chair Janet Yellen.

Markets do not expect the central bank to raise benchmark US interest rates this month but instead to move in December at the earliest as policymakers look for firmer signs of inflation -- which has run below the Fed's target for years despite steady growth and job creation.

Media reports indicate Trump has settled on current Fed Governor Jerome Powell, an attorney and former investment banker who has emerged as a consensus choice, and the president is due to announce his nominee on Thursday. 

Trump has said he wants to draw a line under the Obama era by installing his own Fed chair but does not want interest rates to rise, either.

As the Fed's sole hold-over Republican from the previous administration but also a moderate on inflation, Powell is seen as amenable to Trump's deregulation agenda but unlikely to pursue a sharp course of interest rate hikes.

Replacing Yellen would make Trump the first president since Jimmy Carter not to renominate the Fed chair inherited from the previous administration. 

Yellen has presided over the Fed's cautious, deliberate exit from the era of aggressive stimulus and easy money, policies intended to lift the United States out of the Great Recession of 2007-2010, with rates having inched up just four times since 2015.

But she has described the recent weakness of inflation as a "mystery" and a "surprise." Advanced economies around the world have experienced recoveries marked by low inflation, causing some economists to say this may be a defining characteristic of the current era.

But, despite deepening internal disagreements, the Fed has said weak inflation in the US is transitory.

As for the meeting's outcome, markets will be looking for hints as to when the next rate hike may come. Futures markets put the odds of a December hike at nearly 100 percent.

Josh Bivens, research director at the left-leaning Economic Policy Institute, wrote Tuesday that Yellen should stay on as a member of the Board of Governors after stepping down as chair of the central bank.

Yellen's four-year term as chair expires in February but her membership on the board lasts another six years. After leaving, Fed chairs typically do not remain on the board, however.

"She is likely to lose a job she has done extraordinarily well for no good reason at all," Bivens wrote in a blog post.

"But her continued presence as a key decision-maker at the Fed would be a huge win for smart economic policymaking."