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The Fed Is About To Get Trumpier

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In a week when the political world once again threatened to spin off its axis, there was something comforting in the dependable boringness of Federal Reserve Chair Janet Yellen’s biannual testimony before Congress. The big news out of the hearings was that the Fed plans to do what it already planned to do (gradually raise interest rates), but perhaps a bit more slowly than it had previously planned. (Investors weren’t bored: Stocks soared on the news.)

Yellen may be yet another powerful person with a New York accent, but she is perhaps the least Trump-like figure in Washington: measured, cautious, her every word chosen to avoid unintended consequences. But the Fed could soon become a lot more, well, Trumpian. Yellen’s four-year term as chair expires early next year, and while President Trump hasn’t ruled out reappointing her, he isn’t expected to do so. (Yellen, asked about her future at this week’s congressional hearings, said she hadn’t considered whether she would stick around for a second term if Trump asked her to stay.) Politico reported this week that the leading candidate to replace Yellen is Gary Cohn, the former Goldman Sachs executive who now serves as Trump’s top economic adviser.

In the context of Trump’s White House, Cohn is generally considered something of a moderating influence. Cohn has reportedly pushed back against imposing tariffs or adopting other anti-trade policies advocated by other Trump advisers such as Steve Bannon. (He has also hired a staff full of policy experts, something other senior officials haven’t yet managed to do.) But by the reserved standards of the Fed, Cohn would represent a sharp departure in both style and experience. Yellen, like most of her predecessors, is trained as an economist and is steeped in the traditions of academic discourse and peer review. Cohn is a former Wall Street trader and rose through the famously cutthroat ranks of Goldman Sachs. It isn’t hard to imagine Cohn’s brash style proving an awkward fit at the more collegial Fed.

It is less clear what Cohn, or any other Trump pick for Fed chair, might mean for economic policy. Historically, Democrats have tended to want the Fed to keep interest rates low (encouraging more employment and faster wage growth), while Republicans have wanted higher rates to keep inflation in check. But Trump has previously expressed a preference for low rates, which might help explain his interest in an unconventional pick for Fed chair — most conservative economists would probably want to push rates higher. Meanwhile Yellen, who was appointed by President Barack Obama, has frustrated liberals by pushing ahead with rate increases despite low levels of inflation. Trump, in other words, could end up making the Fed more interesting and also, perhaps ironically, more liberal.

The environment: Drink up

It’s been in the works for a while, but this week the Environmental Protection Agency officially began the process of withdrawing the Clean Water Rulea never-implemented Obama-era regulation that would have allowed the EPA to treat pollution in upstream tributaries (including seasonal streams and wetlands) the same way as pollution in the larger, navigable lakes and rivers connected to those waterways. You might have heard it referred to as WOTUS, or the Waters of the United States. The rule got big pushback, from the agricultural industry in particular, because of fears (unfounded, according to the Obama EPA) that it would mean increased interference in the basic activities of farming and ranching.

Because of the legal and rhetorical battle, it’s easy to miss that the EPA originally pitched the rule as a way to protect drinking water. According to a 2009 analysis, the vast majority of the continental U.S. served by public drinking water systems — 94 percent — gets its water, at least in part, from little streams and waterways that don’t run year-round. That’s more than a third of all Americans. Historically, it’s been unclear whether the EPA had the power to monitor and regulate pollution in those waters — instead, regulatory authority was decided on a case-by-case basis. Under the Trump administration, the EPA seems to favor an interpretation of the law that would limit regulation as much as possible.

How that plays out will vary across the nation. Regions with a lot of year-round streams and rivers (such as Minnesota and Florida) draw more of their water from already-regulated sources. Ultimately, it’s the West, Southwest and arid Plains areas where the most drinking water comes from sources the EPA won’t be watching. Without that oversight, some waterways and wetlands could be destroyed as part of development projects, Annie Sneed wrote in Scientific American. In other cases, lack of oversight could mean an increase in pollutants that end up in downstream water treatment plants — potentially increasing costs to cash-strapped local water systems or even possibly overwhelming those systems, resulting in higher levels of contaminants in the drinking water itself.

Criminal justice: Back at war

Attorney General Jeff Sessions this week returned to a favorite theme: beefing up law enforcement. Speaking at the annual D.A.R.E (Drug Abuse Resistance Education) conference in Dallas, Sessions said that enforcement is the solution to the nation’s opioid epidemic and blamed a recent spike in violent crime on the Obama administration’s efforts to pull back on mandatory minimum sentences for low-level drug offenses. “Sentences went down and crime went up,” Sessions said, according to his prepared remarks.

There are two problems with that statement, however. First, the spike in crime is overblown. It’s true that big U.S. cities have witnessed a significant increase in murders in recent years, a rise that appears to have continued (but slowed down) in early 2017. But murder remains low by historical standards, and other violent crimes haven’t seen the same big increase. Overall, major crimes are way down nationally since the 1990s.

Second, research has consistently found that longer sentences don’t reduce violent crime, and experts say that drug offenses aren’t a main driver of these crimes in the U.S. in any case. Furthermore, it isn’t clear that the enforcement policies the Trump administration is proposing would be well-tailored to addressing the drug epidemic. Sessions, for example, highlighted the administration’s enforcement at the southern border as key to stopping illicit drugs from coming to the U.S. But there is little indication that Trump’s proposed wall (or increased border security more generally) will stop the influx of drugs. Sessions also spoke of reducing drug use by raising the street price of drugs. An analysis this week from The Washington Post, however, found that the steepest drop in drug prices occurred during the 1980s and ’90s, at the height of the war on drugs.

“Sessions and Trump are pushing three myths that are contrary to the evidence,” said Thomas Abt, a criminologist at Harvard University. “That the recent spike in violent crime is about drugs, or that it is about immigration, and that the only viable response is enforcement.” None of those things, Abt said, are true.

Health care: The per capita problem

Senate Republicans this week rolled out their new version of a bill to repeal and replace parts of the Affordable Care Act. On Thursday, we described what’s new in the latest draft and how the new version would change both the policy and politics of health care. But one of the most consequential provisions of the new bill is something that didn’t change much from earlier versions: limitations on Medicaid spending.

The GOP bill would phase out the expansion of Medicaid that occurred under Obamacare, which opened the program up to a much broader group of low-income people than it had previously covered (at least in states that chose to take advantage of the expansion). But the bill would also slash funding for most of the parts of Medicaid that predate the Affordable Care Act: the parts that cover low-income pregnant women, people over 64 needing long-term care, people with disabilities, and children. That proposal is part of a longstanding Republican effort to reduce the program’s scope.

The Congressional Budget Office last month estimated that the original Senate health care bill would reduce federal spending on Medicaid by $772 billion over the next decade. Republicans, however, have been quick to say that the proposed changes aren’t “cuts” to the program. What they do is turn the program from an entitlement (where the government reimburses states for a fixed share of health care costs, no matter how high) into a per capita cap,1 where the federal government will only reimburse states for a limited dollar amount per enrollee. The spending caps would grow each year, and for the first few years, that growth would keep up with the costs of caring for the elderly and disabled (though not the costs of covering children and adults), according to MACPAC, an independent federal agency that provides analysis on Medicaid and CHIP. But by 2025, according to MACPAC’s projections, federal funding would fall short for all of the groups covered by Medicaid.

Imposing a per capita cap on Medicaid could also introduce complications beyond the simple reduction in overall funding. Substantial demographic variations among states, for example, mean that a per capita cap could end up penalizing states with a larger share of senior enrollees over age 85, a group whose health care costs more than that of people age 65 to 84, or states with younger children, who are more costly to cover than older children. That could pose a political challenge for a bill that already has very little margin for error in the Senate. More importantly, the proposed changes could have huge consequences for a program that covers about one-fifth of the U.S. population.


  1. States would also have the option of taking a block grant — a lump sum of money that comes with fewer federal requirements — if they wanted.

Ben Casselman was a senior editor and the chief economics writer for FiveThirtyEight.

Kathryn Casteel is a former FiveThirtyEight staffer who wrote about economics and policy issues.

Anna Maria Barry-Jester is a senior reporter at Kaiser Health News and California Healthline, and formerly a reporter for FiveThirtyEight.

Maggie Koerth was a senior reporter for FiveThirtyEight.