Trump’s Pick for the Nation’s Central Bank Has Economists Worried

Donald Trump is no stranger to controversial nominees, but his latest pick for the Federal Reserve Board has proven unusually contentious.

Since Trump announced in late March on Twitter that he would nominate Stephen Moore to the board governing the nation’s central bank, economists from across the political spectrum have spoken out against the pick.

“As far as economists go, we’ve seen something close to universal opposition to Moore as an appointee to the Federal Reserve,” said William Luther, director of the American Institute for Economic Research’s Sound Money Project.

At the same time, Moore has faced controversy over the fact that he has $75,000 in unpaid back taxes, that he was found in contempt of court in 2012 for failing to pay his wife $300,000 in child support and alimony and that the Federal Election Commission fined the Club for Growth $350,000 when he was president for failing to register as a political committee.

In addition, it surfaced that the Kansas City Star declined in 2014 to run any more columns by Moore because he had made so many factual mistakes.

Since the announcement, prominent economists such as Greg Mankiw, who was an economic adviser to George W. Bush, and Justin Wolfers, a professor of economics at the University of Michigan, have spoken out, saying Moore would be a poor choice for the board.

Moore’s views on inflation and the power of the Federal Reserve seem to closely align with Trump’s. He wrote an op-ed in the Wall Street Journal last month arguing that the Fed is a “threat to growth” and has been vocally advocating lower interest rates, a position that Trump likes but that puts him at odds with current Federal Reserve Chair Jerome Powell and other Fed officials.

That concerns Luther, but he says he’s more concerned that the conservative pundit is simply not qualified to serve on the Fed.

Moore, who holds a masters degree in economics from George Mason University, is a visiting fellow at the Heritage Foundation and has written about economics for years. He previously ran the conservative Club for Growth advocacy group and has worked at other think tanks, but does not have as much direct economics experience as some other members of the Federal Reserve Board.

“Moore is a pundit and policy writer, but more importantly, his area of expertise is in budgetary policy. That is in deciding what tax rate the government should charge, how government should spend in order to promote economic growth,” Luther says. “He’s not an expert in monetary policy or financial markets regulation. And the Federal Reserve just doesn’t conduct budgetary policy — it conducts monetary policy.”

This experience and his political priorities can be seen in his changing stance on monetary policy, according to Luther.

During the 2007 to 2009 recession, Moore was against the expansionary policy of lowering interest rates. But now that the economy is better, he has flipped his position. This is the opposite stance of many other economists.

“We have to ask ourselves: What is the cause of this change in position?” Luther says. Instead of looking at the economy for an explanation, Luther suggests looking to the coming 2020 election.

If the Fed cuts interest rates, as Trump has demanded, it could boost the economy and create a more favorable environment for an election year.

“When Barack Obama was in the White House, Moore preferred tight monetary policy because tight monetary policy reduces output, increases unemployment and makes it less likely that the incumbent president or the incumbent president’s party will be reelected,” Luther says. “Now that President Trump is in the White House, he prefers loose monetary policy.”

Moore reportedly came up for consideration after Trump read a recent Wall Street Journal op-ed he wrote. But the Washington Post’s Catherine Rampell has explained that while Moore argues he is basing this deflation argument on commodity prices, these prices are volatile and are not what the Fed tracks when setting monetary policy.

Luther sees this as another instance where Moore is making the argument that he needs to in order to support a position that the Fed should lower interest rates.

The Federal Reserve is designed to be insulated from political decision-making, so that board members can make decisions based on what is best for the economy, although Luther notes that there have been examples in the past of politics intruding on the board.

“The classic case is Arthur Burns, who Nixon pressured to engage in expansionary monetary policy in the run up to the 1972 election. We also have cases of Lyndon B. Johnson talking to the attorney general about potentially firing the Fed chair,” Luther says.

But the Fed’s job is to make decisions about the country’s economy, and many are concerned that Moore could make that more difficult.

“My concern, and I think the concern of many economists, is that an appointment like Stephen Moore, really opens the floodgates in terms of reducing central bank independence at the Fed,” Luther said.