25 questions Trump and the Senate should be asking of every potential Fed nominee

Graeme Sloan/Bloomberg

Like it or not, we live in a "bashocracy," where seemingly everyone bashes someone or something, privately or publicly.

China-bashing, media-bashing and Trump-bashing lead the list, but Fed-bashing is right up there. Ironically, much of the China-, media- and Fed-bashing is done by our basher-in-chief, President Trump.

Speculation is swirling over whom Trump might nominate for the next Fed governor vacancy and especially the replacement for Fed Chair Jay Powell.

But, how exactly is Trump coming up with these names?

Trump graduated from Wharton in 1968, two years before I began my 42 years of teaching finance and economics there. Had Trump been my student, he would have learned a few timeless lessons about what it takes to be a good Fed governor.

For instance, my students quickly discovered that politicians can repeal regulations and laws, but they cannot repeal the fundamental law of supply and demand. Besides understanding the simple inflation definition of "too much money chasing too few goods," they also learned the psychology of inflation expectations: We have inflation because we expect inflation, and we expect inflation because we've had it.

To assist my fellow alum with his Fed nominations and the Senate in their confirmations, I drew on my 60 years of Fed watching, including the last 30 as a critic, some would say basher, to develop 25 screening questions every serious nominee should be able to positively answer.

Do you have a Ph.D. in economics? If no, thank you and goodbye, or TYAG. If yes, elaborate and continue, or EAC.

Do you agree tariffs are generally inflationary in the short run? If no, TYAG. If yes, EAC.

Do you agree with Milton Friedman that "inflation is always and everywhere a monetary phenomenon?" If no, TYAG. If yes, EAC.

Do you further agree with Friedman that monetary policy operates with long and variable lags? If no, TYAG. If yes, EAC.

What about Friedman's critique of the Fed: "There is no institution in the United States that has such a high public standing and such a poor record of performance?" If no, TYAG. If yes, EAC.

Do you agree the Fed's "dual mandate" of maximum employment and stable prices ignores a third statutory goal of promoting "moderate long term interest rates?" If no, TYAG. If yes, EAC.

Do you agree the Fed's mandate should be broadened to include economic growth, payments, bank regulation/supervision and financial stability, including the lender of last resort function? If no, TYAG. If yes, EAC.

That said, do you agree the Fed is guilty of "mission creep" by wading into social issues such as climate risk? If no, TYAG. If yes, EAC.

Do you agree the Fed should be particularly mindful of low- and moderate-income households and small businesses? If no, TYAG. If yes, EAC.

Do you agree the Fed's lead role in attempting to modernize the Community Reinvestment Act, which was rescinded after a successful industry challenge, was a costly mistake, doing nothing to address "weblining" by branchless banks? If no, TYAG. If yes, EAC.

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Do you agree the Fed should consider rules-based approaches to monetary policy like the Taylor Rule, instead of the current discretionary approach with a 2% inflation target? If no, TYAG. If yes, EAC.

Seeing the pandemic's record fiscal and monetary stimulus starting in 2020, would you have raised rates in 2021? If no, TYAG. If yes, EAC.

Would you ignore and publicly reject any White House pressure to lower rates? If no, TYAG. If yes, EAC.

Do you agree the Fed, particularly the Federal Reserve Bank of San Francisco, failed in its regulatory oversight of Silicon Valley Bank? If no, TYAG. If yes, EAC.

Do you agree the current CAMELS approach to bank regulation should be replaced with SLEMAC, emphasizing sensitivity to risk and liquidity management over capital requirements? If no, TYAG. If yes, EAC.

Do you believe government statisticians are politically unbiased in their reporting of critical government data? If no, TYAG. If yes, EAC.

Do you agree Arthur Burns was the worst Fed Chair in modern times? If no, TYAG. If yes, EAC.

Do you agree that deregulation, if overdone as in the early 1980s and early 2000s, can severely damage the financial system and economy? If no, TYAG. If yes, EAC.

Do you agree that crypto in general and stablecoins in particular pose major risks to the financial system and economy if not properly regulated? If no, TYAG. If yes, EAC.

While Treasury manages the dollar, do you agree that it must remain the world reserve currency? If no, TYAG. If yes, EAC.

Do you agree that Fed "group think" concerns could be alleviated through significantly more timely and complete disclosure of FOMC meetings, perhaps even next-day minutes? If no, TYAG. If yes, EAC.

Do you agree the Fed's $6.5 billion budget, including current renovations, should be independently audited and DOGE-reviewed? If no, TYAG. If yes, EAC.

Do you agree with the proposal to reduce the number of Federal Reserve Banks from the 12 created in 1913, including two in Missouri, to six and to hold Fed conferences at them instead of pricey resorts like Jackson Hole? If no, TYAG. If yes, EAC.

Do you agree with the proposal to relocate the Board of Governors to New Yor City to better insulate it from political influence? If no, TYAG. If yes, EAC.

Finally, do you agree Senate confirmation of Fed governors should require a two-thirds rather than a simple majority to better safeguard political independence? If no, TYAG. If yes, congratulations on your confirmation to the Federal Reserve Board of Governors!