Donald Trump recently announced his intention to fill the two open spots on the Federal Reserve’s Board of Governors by nominating Herman Cain and Stephan Moore. Both have no monetary policy experience and are grossly unqualified for the job, but there’s something deeper and more troubling about their nomination: it signals Trump’s determination to meddle with the Fed. Both Cain and Moore would bring a decidedly partisan mindset to an institution that prides itself on being independent.
The Federal Reserve Board’s governors are nominated by the President and confirmed by the Senate, and serve up to fourteen-year terms. Governors are members of the Federal Open Market Committee, which meets eight times a year to review the state of the economy and decide whether to change the Fed’s monetary policy tool, the federal funds rate. Since the Fed’s governors influence interest rates and therefore the trajectory of the economy, it is crucial that they are experienced and make decisions independent from political considerations.
Herman Cain was a Republican presidential candidate in the 2012 election, memorably proposing the “9-9-9” tax plan under which the only taxes would be a nine percent income tax, nine percent sales tax, and nine percent corporate tax. The closest thing Cain has to monetary policy experience is a stint on the Federal Reserve Bank of Kansas City’s board of directors. This group is comprised of business owners who meet with the president of the Bank of Kansas City about the state of the economy; they don’t have anything to do with deciding the Fed’s interest rate policy. Stephen Moore is the former president of the conservative Club for Growth and was a Trump presidential campaign advisor. Moore has shown a blatant disregard for facts during his time as an economic commentator: he’s called for a return to the gold standard and has recently said that the economy is experiencing deflation, which it certainly is not. Economists from all political backgrounds have decried Cain and Moore’s nominations; Gregory Mankiw, chair of the Council of Economic Advisers during the Bush administration, called them “shockingly unsuitable.”
At the moment, Herman Cain’s chances of confirmation appear small, as several Republican Senators have already signaled that they are not willing to support him. Moore also has legal issues, such as a failure to pay child support, that might prevent his confirmation. But even if Cain and Moore never end up on the Board of Governors, the public should still find the fact that they are under consideration deeply distressing. Trump is threatening to fill the vacancies on the Board of Governors with people who are purposefully averse to facts and are willing to manipulate monetary policy to what is politically convenient. For instance, Moore and Cain called for the Fed to raise interest rates during the Obama administration when the economy was still recovering from the Great Recession. Now that unemployment is historically low and the economy has been in a long expansion, both have said the Fed should lower interest rates. Lower interest rates encourage investment and provide the sort of short-term boost to the economy that is politically beneficial to whoever is in the White House.
The Fed’s independence is at the core of its identity as an institution. It carries the “dual mandate” to maintain maximum employment and stable prices. It’s critical that the members of the Federal Open Market Committee, who vote on interest rate changes, carry out the terms of the dual mandate apolitically. Interest rates that are too low would be politically popular but could lead to runaway inflation and be disastrous for the economy. If Cain and Moore are confirmed, they might use their positions on the Federal Open Market Committee to promote lower interest rates, allowing Trump to take credit for a boost in short-term growth and perhaps making the economic effects of the Tax Cut and Jobs Act look more robust.
Until recently, Trump has made reasonable nominations to the Federal Reserve Board. Jerome Powell, who Trump nominated to be Fed chair, has been a member of the Board of Governors since 2012 and was originally nominated by President Obama. He is competent and highly committed to the Fed’s independence. However, it seems that Trump has changed his strategy for dealing with the Fed: he’s stepped up his criticism of Powell and made these ludicrously unqualified nominations. Right now, the Fed is clearly one of the most highly-functioning, nonpartisan institutions in our government. Even if Cain and Moore are never confirmed, it is terrifying that Trump is attempting to erode the credibility of an institution that has long been immune to politics.