Meraglim Blog

It’s Musical Chairs at the Fed. Who Will Be Left Standing?

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When President Trump was sworn in on Jan. 20, 2017, he inherited two vacant seats on the seven-person board of governors of the Federal Reserve System. Holders of those two seats are also members of the Federal Open Market Committee (FOMC), the group that sets U.S. interest rates and monetary policies.

President Obama also had the same vacancies, but he did not nominate anyone to fill the seats because he doubted his chances of getting the nominees past the Republican-controlled Senate and he was sure “President Hillary” would do the right thing and appoint pro-Democratic nominees. In the end, Trump beat Clinton and the vacancies fell to Trump.

Then Trump got another windfall. Within 14 months of becoming president, three additional Fed governors resigned (Dan Tarullo, Stan Fischer and Janet Yellen), and Trump suddenly had five vacancies to fill, or 70% of the entire Fed board.

Trump promoted Jay Powell to chair and appointed Richard Clarida as vice chair, Randy Quarles as vice chair for regulation and Michelle Bowman to fill a seat reserved for community bankers. All of those appointments were well regarded by Wall Street and the media. But that still left Trump with the two original vacancies.

As discussed in this article, Trump has indicated he wants to appoint Herman Cain and Steve Moore to fill those seats. Cain is a former presidential candidate, chair of the board of the Federal Reserve Bank of Kansas City and CEO of the Godfather’s Pizza chain. Moore is a think tank analyst, founder of the Club for Growth and a former member of the editorial board of The Wall Street Journal.

Cain has run into opposition from Senate Republicans based in part on old allegations of sexual misconduct. Moore is also being opposed by those who fault him for not having a Ph.D. in economics. Whatever the merits, the real reason they are being opposed by monetary elites is that they are “friends of Trump” and will hold Jay Powell’s feet to the fire to cut interest rates and keep the economic expansion going ahead of the 2020 election.

No worries. If Cain and Moore are withdrawn, (and breaking news is indicating that Cain is withdrawing from consideration to be nominated), there’s some indication that Trump’s next nominee will be Judy Shelton. She does have a Ph.D. and is a well-known advocate of a new gold standard.

For those who want Cain and Moore to step aside, the best advice may be “Be careful what you wish for.”

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