Economic Perspective: Fed Nominees and the Battle Over Policy

Economist Mike Walden

MARY WALDEN:

“Today’s program looks at Fed nominees and the battle over policy. Mike it’s expected that President Trump will soon nominate two individuals to vacancies on the Federal Reserve board. Why is this action important, and what kind of policy debates might it spark?”

 

MIKE WALDEN:

“Number one: It’s important because the Fed is very important. The Reserve has a lot to do with how fast the economy grows, inflation, interest rates et cetera. Of course, everyone knows the Federal Reserve was at the middle of trying to stop the Great Recession, and there’s a lot of controversy over what they’ve done since.”

“The two individuals that the president is expected to nominate, one comes from the private sector, the other comes from academia. Both however have prior government experience, in fact one of them in the Federal Reserve. “

“What we know about them is they seem to have very different views on Federal Reserve policy than what the current members of the Federal Reserve board have. Specifically, these two individuals seem to want to set a rule that the Fed should follow in setting interest rates rather than the Fed being subjective about setting interest rates, particularly short term interest rates.”

“They want the Fed to adopt a rule to set interest rates, and the argument is that if that rule were in place perhaps we’d be in a better situation today than in the past. Very controversial. So that’s one point of disagreement.”

“The second point of disagreement is that these two individuals have been critical, prior to their nomination, of the kind of intervention the Fed did, particularly in buying a lot of assets during the last recession, and that has swollen the balance sheet of the Federal Reserve, and it’s created a situation where the Federal Reserve is going to have to walk very carefully in bringing that balance sheet down. Anyway, they’ve been very critical of that which means that if they are on the board in the future, and another recession hits, we would likely not see that kind of action.”

“So this is something to watch. This is something that’s not going to get a lot of attention, but it’s something to watch because the Federal Reserve is a government agency that really affects all of us.”

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