Conservative economist Stephen Moore criticized the Federal Reserve during the Obama administration for keeping interest rates low, arguing that the policy could lead to an uncontrollable rise in inflation.
But now the former adviser to President Trump says he’s untroubled by Trump calling on the Fed to keep interest rates down. Raising interest rates too quickly, Moore said, could disrupt the healthy American economy.
“I have to confess: I was wrong about inflation in 2009 and 2010. I thought there would be a lot of inflation with the Fed lowering rates to practically zero, and that was wrong,” said Moore, an economist with the Heritage Foundation, in an interview Wednesday. “How are we going to get growth if the Fed tries to snuff it out every time the economy is doing well?”
Moore and other conservatives face a conundrum: After calling for the Fed to increase interest rates, they have to decide whether to join a Republican president in calling for lower ones.
Trump has adopted positions on interest rates that some critics have called contradictory. Before taking office, Trump criticized former Fed Chair Janet L. Yellen for keeping interest rates low in the aftermath of the Great Recession, saying she was doing so “because she’s obviously political and she’s doing what Obama wants her to do.” Now Trump is publicly criticizing his choice to lead the Federal Reserve, Jerome H. Powell, for slowly raising interest rates.
"I don’t like all of this work that we’re putting into the economy and then I see rates going up,” Trump told CNBC in July, in one of several recent comments expressing disapproval with Powell’s decisions.
Lower interest rates help spur economic growth, decreasing the cost to businesses of new investments and the amount consumers have to spend on interest. Higher interest rates have the opposite effect, which could potentially slow a strong economy that has been a key selling point of the Trump administration.
Rates have been at historic lows for a decade, part of a Fed effort to stimulate the economy in the aftermath of the financial crisis and Great Recession. But the central bank is now raising rates, citing strong overall economic growth and the lowest unemployment numbers in years. The next hike is widely expected to be made when the Fed meets in September.
Many conservative economists have been calling for higher rates for years. Jeffrey H. Dorfman, an economics professor at the University of Georgia and vocal critic of the Fed during the Obama administration, lamented that conservative opposition to lower interest rates had softened under Trump.
“My personal opinion is most people in Washington are incredibly hypocritical and change their opinion based on which party is in power,” Dorfman said. “The Fed lowered rates too far and kept them low too long.”
Trump has disagreed, publicly calling for Powell to keep interest rates low. That move has also broken long-standing precedent that presidents not interfere with the independence of the central bank. In a recent private meeting with Sen. Tim Scott (R-S.C.), Powell gave assurances of the Fed’s independence.
Other conservatives side with Powell over the president. Brian Riedl, an analyst at the libertarian-leaning Manhattan Institute, said Trump had broken with conservatives on a range of key economic questions, including monetary policy.
“It’s not surprising he wants that to keep the growth going,” Riedl said. “But conservative economists prioritize stable money as a necessary component of economic growth and not letting that overinflate and overheat.”
Moore, of the Heritage Foundation, said his bigger complaint with the Federal Reserve during the Obama administration was its purchase of trillions in assets. He also said some inflationary fears had been exaggerated, pointing to an only modest rise in commodities prices.
“I see arguments on both sides: It’s not an open-shut case the Fed should be raising rates,” Moore said. “But Trump’s point is a legitimate one: We have a booming economy with some wage gains, and that’s what we want.”