Would Stephen Moore change the Fed, or vice versa?
WASHINGTON — For most of President Trump's term in office, his appointments to the Federal Reserve Board have been establishment figures — experienced policymakers whose presence on the board calms market fears about upheaval at the central bank.
But observers say the latest names mentioned for prospective governor positions — first, former GOP presidential candidate Herman Cain and then the conservative pundit Stephen Moore — are a sign that that tide is turning. Moore's possible nomination has drawn strong reactions, with critics arguing his primary qualification is fealty to Trump rather than academic or business pedigree.
Moore's confirmation could be a step toward a more overtly political Fed, signaling a potential move by Trump — who has already sharply criticized Fed Chairman Jerome Powell's interest rate decisions — to have a more direct hand in central bank policies.
Some see the Fed picks as comparable to the trend with recent Supreme Court appointments that have moved the high court away from the center.
“There’s a risk that the Fed will be considered more partisan, following that trajectory of the Supreme Court,” said Justin Schardin, a fellow at the Bipartisan Policy Center. “Most previous governors have been mainstream right or left. There’s room for a diversity of views … but whatever views they have need to be evidence-based.”
Some of Moore’s opinions and statements have drawn rebuke from economists, and the former chair of George W. Bush’s Council of Economic Advisors, George Mankiw, said in a blog post that Moore “does not have the intellectual gravitas for this important job.”
But if Moore is ultimately nominated, his confirmation appears to be on sound footing. Democrats roundly criticized the pick, but they don't control the Senate. Meanwhile, Republicans who were somewhat surprised by Trump's announcement that he would select Moore — a former Trump economic adviser and former member of the Wall Street Journal editorial board — have found no reason to oppose him.
Sen. Tim Scott, R-S.C., said that although Moore is a “provocative individual,” as a Fed governor he would likely adopt a more moderate style than as a pundit.
“I think that as a commentator, you take a far more hyperbolic position than you would as an actual member of the Federal Reserve,” Scott said. “So his previous statements don’t give me that many reasons to pause.”
Sen. Mike Rounds, R-S.D., similarly acknowledged that Moore’s nomination was “outside of the box” for a Fed seat.
“I will be seeing him on several occasions in the next couple of weeks, so while I have no reason not to support him, I will withhold my final judgment until I’ve had a chance to visit with him and see his final comments,” Rounds said.
Some observers question whether Moore, if he is confirmed, could pull the Fed toward a more openly partisan stance, either on his own or in combination with current or future board members.
“I think Moore is unlikely to do much to change the operating procedures of the Fed, in part because he is not familiar with them and does not have the reputational credibility to be taken seriously by anyone other than hard partisans,” said Peter Conti-Brown, assistant professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School of Business. “For those who are eager to see the Fed turned inside out, one appointment — even one as clearly partisan as this — won't do it.”
Still, Conti-Brown said, Moore’s confirmation could represent a broader trend away from relatively nonpartisan policy experts toward more open partisan operatives, and that Trump’s success in putting Moore on the Fed would embolden a future Democratic president to do the same thing.
“If the U.S. Senate rolls over on this appointment, it will be much harder for presidents and senators in the future … to be disciplined enough to put forward credible candidates who will place expertise ahead of ideology,” Conti-Brown said. “Stephen Moore is a partisan, not an expert. He has already shown that he prefers the policy course that helps the politicians he likes and hurts the politicians he doesn't. There is no worse a worldview for a central banker to have.”
Moore himself has taken steps in recent days to downplay some of his more hard-edged comments. In an interview with The New York Times, he said he regretted saying that Trump should fire Powell for raising interest rates in December, noting that Powell is “doing the best job he can.” Moore also asserted that he would act independently of Trump, saying he’s not the president’s “sycophant.”
Brian Gardner, director of Washington research at KBW, said that regardless of Moore’s intentions — or the president’s, for that matter — the Fed has a way of turning officials into careful, more sober policy experts, even if they did not start out that way. He said responsibility for the economy and the market's attention to everything you say makes one more careful with their words. Officials at the central bank take a pass on scoring political points.
Coming to the Fed "gives a person pause,” Gardner said. “You’re not an academic, you’re not a pundit anymore. You’re not free to just go out and say whatever you want, because it used to be that people weren’t paying attention to you. Now they are, and your comments have market implications.”
But Gardner added that Fed governors might be more judicious with comments related to monetary policy than with regard to bank regulation, since the latter has less potential to swing markets. Moreover, the structure of the Federal Open Market Committee gives each governor even more of a say on regulatory issues than they have on monetary policy. That could give Moore a freer hand to voice his opinions.
“I think he can afford to be more candid and blunt on regulatory policy — the implications are not quite the same,” Gardner said.
Karen Shaw Petrou, managing partner of Federal Financial Analytics, said it is uncommon for a single board member to bend the agency to his or her will, but it is not unprecedented. She noted the outsize impact of former Gov. Daniel Tarullo — who had been an adviser on President Obama’s campaign — on the Fed over the course of his tenure from 2009 until 2017.
“He came on board and took possession of the Fed staff, which had been very stodgy, relaxed, old, very tight with the banks on regulatory and supervision structure, and he shook the dickens out of it,” Petrou said. “And by the time he left, he had really reshaped the Fed’s cultural approach to regulation, and to a lesser extent supervision.”
But Tarullo had that kind of influence not through sheer will, she said. Other factors were at play. His role grew with the seriousness of regulators' response to the financial crisis, and the support he received from former Chair Ben Bernanke and then former Chair Janet Yellen. A single governor would be hard-pressed to have that kind of influence on monetary policy on the more diffuse FOMC, she said.
“You can do that on the board if, one, you’re in the position to do it, two, you’ve got the support of the chair, and, three, you’ve got the technical expertise in supervision and regulation,” Petrou said. “In monetary policy, where the technical issues can be far more daunting — but, more importantly, you’ve got the FOMC — it’s a lot harder.”
Still, she added that the Fed could benefit from an outside-the-box Fed governor to effectively challenge some of the central bank's longstanding monetary policy assumptions. Moore’s background as a supply-side economist and the Fed’s prevailing neo-Keynesian approach to economics are both rooted in an American economy with a large and robust middle class, she said, and it might take someone asking the right questions for the central bank to begin to evolve its monetary policy approach.
“If he only rattles cages and doesn’t throw bombs, it would be good to shake up some of the Fed’s core monetary policy assumptions, because monetary policy is not working,” Petrou said.
Neil Haggerty contributed to this article.