Stephen Moore, a possible nominee for a position as a governor on the Federal Reserve Board withdrew his nomination Thursday after controversial statements and writings surfaced over the past few weeks.
While sexist statements drew the most scrutiny and ire, his economic views were equally problematic.
{mosads}Those views belied a poor understanding of monetary policy, a willingness to shift beliefs based on White House occupancy and would have steered the economy in the wrong direction. Even by his own admission, Moore stated that he had a “steep learning curve” on figuring out what the Fed does.
We are at a precarious moment since the economy is showing signs of continuing growth without rising inflation. Any half-decent economist knows to cut rates in a recession; it’s the uncertain periods when you need people who know what they’re doing.
Many economists have not been hesitant to voice their opposition to Moore’s nomination to the Fed. Whether it was his argument for going back on the gold standard or his theory on basing monetary policy on commodity prices, this is not the time for experimentation.
This nomination, along with the nomination of Herman Cain, showed how much the Trump administration doesn’t understand how the economy does work or how the economy should work.
In a word, we dodged a bullet.
Governors appointed to the Federal Reserve Board serve 14-year terms. Therefore, they have an impact on the economy far past the terms of the president who appointed them.
Members of the Fed are tasked with guiding the economy through the careful analysis of data backed with a strong theoretical foundation. Many of the governors from the Fed, both past and present, have either strong academic credentials or significant policy experience through work in government.
But this is not about having a Ph.D. or a J.D.; it’s about having the experience to not only understand fully the implications of the Fed’s policy tools while also possessing the temperament to be deliberate in considering real-time economic data.
Fed governors chart a course for guiding the economy, and when economic data calls for changes in Fed policy, they can soberly make that decision. This was evident in the past six months with this current Fed.
In 2018, the Fed engaged in rate increases to make sure that inflation did not rise about 2 percent. As the data changed and it looked like there were headwinds occurring, the Fed shifted its policy to stop rate hikes since there was not evidence of rising inflation.
For his part, Moore has shown no evidence that he has ever thought himself to be incorrect in his commentary on Fed policy. In a recent op-ed, he stated, “I have been right a lot more than I’ve been wrong on monetary policy.” This is not a statement from someone who should be a Fed governor.
A key defining feature of the Fed is its independence from the branches of government. This independence is crucial in making certain that the economy is stable and consistent.
If the Fed conducts policy to please the current administration, this could lead to an unstable economy, further leading to unsustainable booms and deep and severe busts.
In Moore’s writings, he has shown himself to be critical of the Federal Reserve, not in a thoughtful manner, but in a partisan fashion.
His only guiding principle seems to have the Fed engage in loose monetary policy (lowering interest rates) during a Republican administration and tight monetary policy (raising interest rates) during a Democratic administration.
{mossecondads}It is this type of thinking that many argue led to periods of high inflation and economic stagnation during the 1970s. Any pretense of independence would be thrown out the window if Moore sat on the Fed.
From his book, “Trumponomics,” to his myriad writings from the Heritage Foundation, Moore has shown he adheres more to what Trump wants than to any economic theory.
In a recent commentary, he argued that the Fed should take its cues from the stock market. Moore stated, “[Chair] Powell has been entirely tone-deaf to the financial markets he seeks to protect.” That is not the Fed’s mandate. The Fed’s mandate is to maintain price stability and employment.
In making nominations for Fed governors, the president must be guided by strong principles based on sound theory. Previous nominees to the Fed have been thoughtful but unfortunately, the president now seems only to be guided by whoever shares his views on juicing the economy.
Olugbenga Ajilore is the senior economist at the Center for American Progress.