The pressing issue on many global economists’ mind continues to be the impact of Donald Trump’s presidency on the independence of the US Federal Reserve. Not only has the President taken pot shots at the American central bank’s policy stance, but has also nominated two of his supporters – Herman Cain and Stephen Moore – to its board.
Andreas Johnson, US economist at Nordic Bank SEB, certainly believes the Fed is in for troubling times with consequences for American monetary policymaking. “Should both Herman Cain and Stephen Moore be confirmed to the Federal Reserve Board, this would not alter the Fed fund target rate for 2019 and 2020, but could threaten the US central bank’s independence if Trump is re-elected in 2022,” Johnson wrote in a note to clients.
“Concerns over the Fed’s independence have increased in recent weeks following the announcement that Trump plans to nominate Cain and Moore to the Federal Reserve Board. Both are supporters and have controversial opinions on monetary policy. Although Cain is unlikely to be confirmed by the Senate, Moore has a shot at being included on the Fed Board.”
Johnson says even in the highly unlikely event that both Cain and Moore are confirmed, they would have limited influence over monetary policy over the medium-term.
The Fed is a consensus seeking organisation and the majority would easily out vote Cain and Moore although they could cause confusion through statements and speeches. “As such, President Trump’s aim to put Cain and Moore on the Fed Board do not influence our expectation that the US central bank will leave the Fed funds target rate unchanged at the current 2.50% throughout 2019 and 2020.”
But a re-election of Trump in 2020 would be a threat to the Fed’s independence as it would allow the President to name Cain or Moore new chairpersons in 2022 if they have been included on the board. “Combined with President Trump continuing to install other ‘supporters’, this would increase the President’s ability to influence the Fed. A more general risk is that nominations to the Fed board become increasingly politicised,” Johnson concluded.
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