President Donald Trump announced Thursday that he is choosing Federal Reserve Board member Jerome Powell as the next president of the country's central bank, replacing Janet Yellen, the first woman to hold the position. (November 2)
The choice of President Donald Trump for the Federal Reserve Board, conservative Stephen Moore and former executive of the pizza chain Herman Cain, have created a firestorm in the media. Cain, a Republican presidential candidate in 2012, is expected to step down from opposition to Republican opposition to the Senate, according to an article in ABC News on Friday, although Moore is still in the running.
Trump's plans to name the two political allies followed his repeated criticism of the Fed for raising interest rates last year and his thoughts on the possibility of firing the Fed chairman. , Jerome Powell.
USA Today reporters, Paul Davidson Michael Collins, explain why the potential nominations of Moore and Cain caused such a tumult.
Trump has made many unorthodox choices for the Cabinet and other positions. Why did these two generate such controversy?
In simple terms, the Fed is a different species than the Department of Education or the Environmental Protection Agency. It is an independent body that has always been isolated from politics in order to do what is best for the economy. The Fed lowers interest rates to stimulate a sluggish economy and raises rates to avoid excessive inflation. Rising rates make mortgages and other loans more expensive for consumers and businesses, slowing economic growth. But the goal is to prevent galloping inflation that could plunge the economy into recession.
"It may be necessary to make unpopular choices, such as increasing interest rates," says Tim Duy, professor of economics at the University of Oregon and author of the FedWatch blog.
Peter Conti-Brown, a professor of legal studies and business ethics at the Wharton School in Philadelphia, said Peter Conti-Brown, author of "The Power and Independence of the US Federal Reserve." . "
Stephen Moore and Herman Cain in Washington on August 31, 2016 and June 20, 2014, respectively. (Photo: AP)
Why do critics Moore and Cain say that they do not fit well with non-partisan roles?
Moore and Cain oppose the Fed's policy of putting money in the hands of money under President Barack Obama, even though most economists have said that such an approach is needed to get the money out country of the worst economic downturn since the Great Depression. Yet both have recently supported Trump's calls to reduce, or at least not increase, rates, despite a markedly improving economy and moderately higher inflation.
"Their goal is to take the anti-democratic stance in all states of the economy," said Duy.
Conti-Brown was particularly troubled by the fact that Cain had hinted during his 2012 presidential bid that the Ministry of Labor had forecast strong job growth that year to help President Obama get his job done. represent.
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"He was willing to tamper with conspiracy theories," said Conti-Brown, adding that casting doubt on the integrity of the government's economic data was a dangerous tactic that could undermine consumer and business confidence.
Has the Fed always been isolated from politics?
Presidents have regularly selected members of their own party to sit on the Fed board. This has sometimes led Fed officials to democracy, who are more inclined to spur growth and Republicans more worried about inflation, although these distinctions have faded in recent years, said Conti. Brown. For the most part, Republican and Democratic Fed policymakers are technocrats who work to achieve the best possible balance for the economy, says Duy.
Since the Clinton administration, US presidents have generally avoided trying to influence the Fed's decisions. Trump broke with this tradition.
But before the Clinton years, "the presidents have regularly discussed the policy of the Fed," said Lewis Alexander, economist at Nomura, former head of the Fed.
President Lyndon Johnson was furious when the Fed took his wishes into account and raised the discount rate in 1965. He brought Fed Chairman, William McChesney Martin, to his ranch in Texas. took a ride in a jeep, then scolded for the rate hike.
And President Richard Nixon, fearing that a recession would hurt his chances of reelection in 1972, lobbied the Fed chief, Arthur Burns, for it to lower interest rates. . The Fed's key rate fell sharply from 1970 to 1972, causing a slowdown in the economy but causing high inflation. It is not known if Burns considered Nixon's appeal or the economy.
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In addition to their political tendencies, are Moore and Cain qualified to sit on the Fed's board?
Duy and Conti-Brown say no. Although many members of the Fed's board of directors have a doctorate in economics and extensive professional or academic training, others, such as the current Fed chairman, Mr. Powell, do not have one. Yet these Fed officials have generally gained significant related experience, for example in the banking sector, says Conti-Brown.
Mr. Moore, who has a master's degree in economics, has been a member of conservative think tanks such as the Heritage Foundation and the Cato Institute and co-founded the Club for Growth, which advocates for tax cuts. He advised Cain during his 2012 presidential campaign and Trump during his run in 2016 and has regularly appeared on television to support Trump's policies.
Cain has risen through the ranks of companies such as Burger King and Pillsbury before becoming CEO of Godfathers Pizza. He was Director of the Kansas City Federal Reserve Bank from 1992 to 1996 as Vice President and then Chairman of the Board, but Duy does not believe it qualifies him to serve on the Fed Board. . The boards of directors of regional federative banks are often composed of business leaders and not experts in monetary policy.
Moore and Cain both called on the United States to return to the gold standard, which would limit the Fed's ability to adjust interest rates.
Conti-Brown added that he was "very uncomfortably" about allegations of sexual harassment against Cain who had forced the abandonment of the 2012 race. Cain denied the claims.
Did the other Fed candidates in Trump raise such concerns?
The current three board members Trump has appointed all have strong skills and experience in economics, including high-level positions in the Treasury and Banking Departments. Trump himself has raised Powell – a former treasury official, lawyer and banker – from a board member of the Fed's board to president, but has since stepped up because of the higher rates.
Why does Trump take a different approach with these two nominees?
Duy said Trump was frustrated with the Fed 's four rate hikes last year and that he "now chooses the people he thinks will be more flexible.
Michael Bardo, director of the Monetary and Financial History Center at Rutgers University, said Trump was worried that a recession in 2019 or 2020 would knock out his chances of reelection and wanted to nominate candidates. Fed officials to promote policies conducive to growth.
"He thinks like Nixon," says Bordo. "Nixon was really paranoid about a recession."
Could Moore and Cain guide the Fed's policy in the direction that Trump wants if it is confirmed by the Senate?
Almost certainly not. They "would be two votes on a 19" (political decision-making) committee that includes seven members of the Fed's board of directors and 12 regional bank presidents of the Fed, said Barclays and former economist Fed member Michael Gapen.
Duy, however, said Moore and Cain could influence the Fed's internal debate on monetary policy and blur its efforts to better communicate with the public.
And Conti-Brown said their election to the board could set a precedent that would make future presidents more willing to move away from the tradition of choosing technocrats to serve on the board of directors. from the Fed.
Federal Reserve Chairman Jerome Powell said the US economy should continue to grow at a brisk pace, albeit a little slower this year. However, he warns of growing risks. (February 26)
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