President Trump has made a lot of ill-advised nominations. But perhaps no single choice could inflict more long-term damage than the one he announced Friday: Stephen Moore, Trump’s pick to join the Federal Reserve Board.
A decade ago, as the Fed was battling deflation (that is, price declines ) during the financial crisis, Moore preposterously fearmongered that hyperinflation (that is, out-of-control price increases ) was nigh: Americans could soon be carting “wheelbarrows full” of cash a la Weimar Germany. Moore has also repeatedly predicted that tax cuts would pay for themselves — both at the federal level, and in Kansas — despite all evidence to the contrary.
It’s not only his forecasts for the future that have proved chronically incorrect; it’s his characterizations of past and present, too.
A newspaper banned him from its pages because of his struggles in getting basic statistics right. During the dozens of times I’ve debated him on TV, he has persistently misstated easily Google-able facts. These include whether the country is experiencing deflation, whether Canada’s tariffs are “twice as high as” ours, and whether the Fed predicted that Trump would crash the stock market. (Nope, nope, and huh ? )
Now, somehow, Moore has been nominated to the Fed. To understand why this is concerning, consider a brief primer of what the Fed does.
Congress gave the Fed, the world’s most powerful central bank, a dual mandate: maximum employment and stable prices. For decades — beginning with former chairman Paul Volcker — it has also worked to achieve a reputation for political independence, which is crucial to its ability to achieve these dual objectives.
Why? As I’ve written before, politicians pretty much always have an incentive to reduce interest rates and print money, especially (ahem) heading into an election. Easier money can juice the economy in the short run, after all, boosting growth and reducing unemployment.
The trade-off is that easy money, particularly during a hot economy, can lead to inflation. And that inflation can be caused not just by recklessly printing money today, but by the perception that the central bank might do so in the future. When a central bank looks politically compromised — as has happened in places such as Argentina and Venezuela — people don’t believe it will make the unpopular choices needed to stamp out inflation. So, firms start jacking up prices and wages in anticipation of more money flooding the economy.
Moore has lately been agitating for looser money. And to be clear, reasonable people can disagree about whether that’s the right policy to pursue right now.
The question is why Moore supports this policy.
Today, while the economy is strong and has been growing above-trend, he wants both monetary and fiscal stimulus. But a decade ago, when the financial crisis threatened to throw the United States into a deflationary spiral and another depression, he called for rate hikes and austerity, because those wheelbarrows full of cash were supposedly around the corner.
How do you explain this sudden metamorphosis from inflation (and deficit) hawk to dove? In short: A Democrat was president then; a Republican is president now.
Moore is a political operative: His policy choices appear to be determined by what’s best for his party, not what is best for the economy. You can see that in the way he cherry-picks or misstates economic numbers in TV debates; or in the fact that he once gleefully nicknamed the Trump tax cuts he helped design “death to Democrats,” predicting the law would hurt unions, colleges, Obamacare and blue states writ large.
And look, it is fine for presidents to install political operatives into most executive branch jobs. Secretaries of commerce, transportation, labor, etc., are there to execute the president’s agenda.
But the Federal Reserve is different. To work, it needs to be independent, both in practice and perception. Which is why the norm has been that once the Senate confirms a president’s preferred Fed nominees, he leaves them alone.
Trump, by contrast, has thrown hissy fits when his choice for Fed chairman, Jerome H. Powell, refused to do the White House’s bidding. Moore has encouraged these destructive, market-roiling outbursts, publicly urging Trump to fire not just Powell but everyone at the Fed.
None of this bodes well for the future of central bank independence — not just for the remainder of Trump’s presidency, but for either the five or 11 years Moore would serve if he is confirmed by the Senate, depending on which vacancy Trump ultimately nominates him for. Who knows what damage he might be tempted to inflict over that time to make a Republican president look good — or (based on his recommendations during Barack Obama’s presidency) a Democratic one look bad?
The Fed has spent decades cultivating its reputation for political autonomy. But reputations are hard won, and easily lost.