Screenshot, YouTube
- President Donald Trump said Friday he would nominate Stephen Moore for an open spot on the Federal Reserve’s Board of Governors.
- Moore holds unconventional views and has drawn criticism from both sides of the aisle.
- He has even suggested pegging interest rates to the cost of commodities, which could cause widespread price volatility.
A political ally to President Donald Trump and an outspoken critic of the Federal Reserve, Stephen Moore has raised a litany of concerns following his nomination for an open seat on the Board of Governors.
But among the most glaring for policymakers: Moore has pushed officials to target commodity prices when setting interest rates, an approach rejected by economists from across the political spectrum.
"The Fed’s goal should be to avoid excessively loose or tight money by seeking stable commodity prices," Moore wrote this month in a Wall Street Journal op-ed with co-author Louis Woodhill, an investor and entrepreneur.
He argued that the Federal Open Market Committee, a decision-making body he would earn a spot on if confirmed as a governor by the Senate, should move interest rates in tandem with a composite commodity-price index. They should hike when it’s up, he said, and cut when it’s down.
Contrary to mainstream economists, Moore seems to view commodity prices as a leading catalyst for other asset classes. He blamed higher interest rates for a sharp sell-off in financial markets at the end of 2018 and misleadingly claimed the economy faced an overall deflation after.
While commodity prices are considered when setting monetary policy, they’re just a few of many factors. They should reflect real interest rates rather than be the sole factor determining them, according to Jeffrey Frankel, an economist at Harvard University’s Kennedy School of Government.
"Stephen Moore has one of the worst records of espousing destabilizing pro-cyclical monetary policy," he said. "If anyone is again proposing that the Fed should target commodity prices, that idea is as nuts now as it was in the 1980’s."
Commodity markets are volatile by nature and don’t necessarily represent price movements across the rest of the economy. In 2018, oil prices jumped to and from multi-year highs within a matter of weeks. The cost of soybeans sometimes moved in lock step with trade negotiations between the US and China.
"Targeting commodity prices is definitely a ‘fringe’ view, and I doubt anyone else on the FOMC will take it seriously," said Ken Kuttner, an economist at Williams College and a former Federal Reserve staffer.
Seeking stable prices and maximum employment, the Federal Reserve looks at broad measures of the economy when assessing its rate path. This month, officials pointed to gloomier growth expectations when they said interest rates would likely remain steady for the rest of the year.
While Moore would get just one vote on the 12-member FOMC, his views toward policy could have wide-reaching effects. It’s no accident that central banks tend to be consensus-driven, said Josh Wright, chief economist at iCMIS and a former researcher at the Federal Reserve.
"If a dissenter has credibility with financial markets, she or he could blunt the message of the majority or increase concerns about political interference," he said. "So there’s a significant risk of further erosion or at least shift in our political culture from having an unconventional Fed governor."
The confirmation process could be an uphill battle for Moore, who wrote a book praising Trump’s fiscal policies and has said policymakers at the Federal Reserve should be fired. While Republicans control the Senate, concerns have surfaced from within the party.
On Friday, Greg Mankiw, a Harvard University professor who was chairman of the White House Council of Economic Advisers under former President George W. Bush, said Moore was unfit for the job and urged lawmakers to reject the nomination.
"It is time for Senators to do their job," he wrote on his website. "Mr. Moore should not be confirmed."
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Source: Business Insider – gheeb@businessinsider.com (Gina Heeb)