Why Stephen Moore is unfit for the Fed

By S.K. | WASHINGTON, DC

PRESIDENT DONALD Trump has been highly critical of the Federal Reserve. Now it seems he is trying to change it from within. On March 22nd he announced that he had nominated Stephen Moore, a senior fellow at the Heritage Foundation, to the Fed’s Board. Mr Moore shares Mr Trump’s view that America’s monetary policymakers are too hawkish.

On December 22nd Mr Moore said he thought the members of the Federal Reserve Board should be “thrown out for economic malpractice.” On March 13th he co-authored an opinion piece in The Wall Street Journal accusing the Fed of acting as an obstacle to American growth.

Mr Moore is certainly not alone in thinking the Fed erred by raising interest rates last year. The Fed itself has become more doveish since then. Last December the board reckoned 2019 would see two interest rate rises. On March 20th they revised that down to none. A bigger concern is the winding path Mr Moore has taken to arrive at his conclusions. It raises serious doubts about his judgment and ability to provide politically neutral advice.

During the Obama administration he railed at the Fed for keeping interest rates too low, and also urged it to shrink the size of its balance sheet. But then he became an advisor to the Trump administration’s election campaign (he recently published a book entitled, “Trumponomics” with Arthur Laffer, an economist). And suddenly he turned from monetary policy hawk to dove. It appears his instincts are informed less by sound principles of economic policy than by whatever he thinks most likely to please Mr Trump.

Mr Moore’s nomination therefore appears to signal a worrying turn in Mr Trump’s approach to the Fed. His previous nominees to its ranks have all been mainstream picks. His last nominee to the Board, Nellie Liang, an economist at the Brookings Institution, was strongly endorsed by the Fed’s chairman, Jerome Powell. By contrast, Mr Moore holds some views that amount to a rejection of mainstream macroeconomics.

For example, he thinks the Fed should target commodity prices, and not their preferred measure of inflation, which strips out energy and food. If Mr Trump has become more willing to nominate people whose main qualification is that they agree with him, the Fed could become—or be seen to become—worryingly politicised.

Mr Moore could yet be blocked by the Senate—though the bank lobbyists who helped put paid to Ms Liang’s nomination are likely to be supportive of him. They will love his gung-ho enthusiasm for deregulation.