NO ONE can accuse Federal Reserve Chair Jerome H. Powell of dogmatism. He took office just over a year ago, promising continuity with the policies of his predecessor Janet L. Yellen, who had begun gradually unwinding extraordinary stimulus measures the Fed used against the Great Recession of 2008-2009. He raised interest rates and shrank the Fed’s bond holdings all through 2018 — until calling a halt to further monetary tightening on March 20. Inflation risks the Fed had perceived in previous months simply aren’t materializing, Mr. Powell explained; in fact, it’s having a hard time reaching its goal of 2 percent inflation. “It’s one of the major challenges of our time, to have downward pressure on inflation” globally, he said at a news conference. If anything, markets have been signaling a risk of eventual recession.
The bad news here, if any, is that the Fed has now paused its “normalization” at what is, by historic standards, a low interest-rate level, simultaneous with enormous federal deficits. If and when the next recession begins, it will do so with much of the government’s capacity for monetary and fiscal stimulus already in use. The good news is that inflation is still nowhere in sight — and that the Federal Reserve is under the leadership of a chairman and a Board of Governors willing to respond rationally to that fact and other data points, rather than sticking to preconceived notions. Data-driven policy, not ideology or partisanship, is the hallmark of sound central banking and the key to preserving the Fed’s independence.
In that respect, it’s just Mr. Powell’s bad luck that his more dovish stance coincides with that of President Trump, who had been inappropriately hectoring the Fed for allegedly excessively tight money in what looked very much like an anticipatory blame game for any economic slowdown that may develop. As if to accentuate the impression that he values political loyalty and ideology over all other qualities, Mr. Trump on Friday announced his intention to nominate tax-cut promoter Stephen Moore, formerly of the Trump campaign, Republican congressional staff, the Club for Growth and the Wall Street Journal editorial page — and currently of the Heritage Foundation — to one of two vacancies on the Fed’s seven-member Board of Governors.
Contrary to Mr. Trump’s description of him, Mr. Moore is not an “economist” (at least in the usual sense of holding a PhD in economics; he has a master’s degree). Nor is he a veteran of the financial markets. History has not been kind to Mr. Moore’s warnings, during the Obama administration, that the Fed was stoking inflation. More recently, he has switched to echoing Mr. Trump’s hyperbolic warnings that Fed policy is deflationary.
Fortunately, there is only so much impact Mr. Moore can have if the Senate confirms him as one of seven governors; Mr. Trump’s previous picks, including Mr. Powell, have been qualified. Probably the major cloud on the economic horizon is Mr. Trump’s trade wars with sundry countries. The main thing the president could do to keep the United States and world economies on an even keel would be to bring trade talks with China to a successful conclusion, resolve outstanding issues with Europe, Mexico and Canada — and leave the Fed alone.