Will the Trump Fed be “normal”?: Ken Rogoff: Donald Trump’s normal Fed

Will the Trump Fed be “normal”? I will give Ken Randy Quarles. I grant Rich Clarida. But Marvin Goodfriend does not seem to me to be a particularly normal Federal Reserve appointment. He’s one of the “debasement” crowd who had no respect for Ben Bernanke’s judgment and tried as hard as they could to limit his freedom of action. If that’s “normal”, “normal” is not a good thing. And otherwise… a lot of unfilled seats. I told Jason Furman he needed to fill up the Fed Board on January 4, 2017. He did not do so: Ken Rogoff: Donald Trump’s Normal Fed : “Unfortunately, the battle for the Fed’s independence is far from over…

…Trump may just be keeping his powder dry until a real conflict erupts. Right now, the Fed’s planned interest-rate hikes are largely prophylactic. Inflation is rising only very slowly, even as the economy seems to be running red-hot. But the moment of reckoning could still come. And, assuming that Trump stays healthy, avoids impeachment, and runs again, the last thing he would want in 2019 and 2020 is sharply higher interest rates, an untimely rise in unemployment, and a likely price collapse in his beautiful stock market. In a crunch, the Fed’s much-vaunted independence could prove more fragile than most people realize. It is not enshrined in the US Constitution, and the president and Congress maintain several levers of control. An act of Congress created the Fed in 1913, and in principle Congress could revamp it, say, by greatly increasing congressional oversight, or by starving it of funding. Indeed, from time to time bills have floated around Congress that would have done just that.

For now, Fed appointees have been treated almost as well as generals in the Trump universe. True, with ballooning deficits and the approach of the 2020 election campaign, testing times lie ahead. But for now, let’s acknowledge that this is one area where the Trump presidency has been almost normal–so far…

May 12, 2018


Brad DeLong
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