Former Federal Reserve officials and foreign central bankers said President Donald Trump’s combative stance toward the U.S. central bank could over time weaken the institution and its role in the global economy, Wall Street Journal reported.
A string of central bankers, including several gathered in Washington for International Monetary Fund meetings over the weekend, expressed concern about the Fed’s political independence as Trump again criticized the central bank and seeks to nominate two stalwart political supporters to the organization who also disapprove of its actions.
Though the Fed signaled in recent weeks that it was done for now with interest-rate increases, Trump wrote Sunday on Twitter that the economy and stock market would be growing faster “if the Fed had done its job properly, which it has not.”
The central bankers said they are concerned the GOP president’s approach could erode non-partisanship in the Fed’s boardroom over the long run. They cited that longstanding tradition as part of the reason the Fed is a global role model for apolitical policy-making.
“I’m certainly worried about central bank independence in other countries, especially…in the most important jurisdiction in the world,” said European Central Bank President Mario Draghi at a news conference here Saturday, referring to the U.S.
Earlier this month, White House economic adviser Lawrence Kudlow said the administration respects the Fed’s independence. While he as well as the President have called on the Fed to cut interest rates, Kudlow said: “The Fed is independent. We’re not trying to compromise that independence and never will.”
Narayana Kocherlakota, former president of the Minneapolis Fed, said it is reasonable for Mr. Trump to think the Fed is pursuing too aggressive a monetary policy and to want people who favor easier policy. But he expressed concern about Trump’s nomination to the central bank of former campaign adviser Stephen Moore and former GOP presidential candidate Herman Cain.
“What I worry about with Cain and Moore,” he said, is that their stance on monetary policy could be different if a Democrat were president right now.
Moore favored tighter monetary policy when Barack Obama, a Democrat, was president. He now says policy should be easier, and he has said that Mr. Trump’s re-election prospects could be threatened if the economy weakens.
Moore’s shifting views “could be interpreted as wanting to defeat Democrats when they’re in office and elect Republicans when they’re in office,” Kocherlakota said. “Over the longer haul if presidents fall into the rhythm of choosing Fed appointments with this thinking, that’s not a good outcome at all.”
Moore said in an email Sunday that he opposed lower interest rates when George W. Bush, a Republican, was president, which “blows up this theory that I’m for rate hikes when [Democrats] are in office and against them when [Republicans] are in office.”
Moore said he opposed the Fed’s efforts to stimulate growth earlier this decade because “the Fed can’t counteract bad real economic policy,” such as the 2009 fiscal stimulus bill and 2010 financial-regulatory overhaul pursued by Obama.
Trump’s picks haven’t caused heartburn in the stock and bond markets. Fed nominations are subject to Senate approval and the White House hasn’t formally submitted Cain nor Moore to the chamber, the Journal adds.
Massachusetts Democratic Sen. Elizabeth Warren on Friday called Moore “unqualified and unsuited” for a Fed seat, writing in a letter to Moore that he has “a long history of making wildly inaccurate claims about economic policy that appear to serve political ends.”
And while both Moore and Cain’s pasts are being scrutinized, Moore has come to Cain’s defense, saying Sunday in an interview with Fox News that he believes Cain “is a great choice””for the Fed’s board, and calling the businessman’s signature 9-9-9 tax plan, which was proposed in 2011 during Cain’s presidential run, a “cool plan,” CNN informed.
Despite the criticism of the two men, White House advisers have made clear that the President wishes to nominate people who share his economic views. He has repeatedly criticized the Fed, and specifically called out Chairman Jerome Powell, a Trump nominee, over rate increases.
Further changes appear to be on hold for now – last month, Fed officials voted to keep interest rates the same, agreeing to indefinitely stick with an extended pause on rate changes and signaling that the Fed wouldn’t hike rates in 2019.