US economy

Trump must be stopped from packing the US Fed


Charitable souls may have written off Donald Trump’s nomination of Stephen Moore to the board of the US Federal Reserve as an accident. To follow a week later with Herman Cain, the former pizza king, looks like carelessness. Neither man is remotely qualified to sit in the monetary cockpit of the world’s reserve currency. Both have auditioned for Fed governorships by supporting Mr Trump’s call for monetary loosening. Each would be a thorn in the side of Fed chair Jay Powell, who Mr Trump has been bad-mouthing. Knowing that, Mr Trump’s selections surely qualify as sabotage.

It is one thing for the US president to pack Washington’s regulatory boards with cronies. Every president does it, though Mr Trump far more blatantly than most. It is quite another to vandalise the integrity of the world’s dominant central bank.

In the short term, Mr Powell could handle two dissonant voices. With 12 voting members, the Fed chair could sideline Messrs Cain and Moore even if they took instructions directly from the White House. The danger is that Mr Trump is preparing to remove Mr Powell himself, in spite of having appointed him.

Such a move would be challenged in the courts. But there is no guarantee Mr Trump would be overturned, given how effectively he has jammed supportive judges into the system. That would take the US Fed into uncharted waters. The last time a US president controlled a Fed chair was when Richard Nixon bullied Arthur Burns into monetary loosening before the 1972 presidential election. It sowed the seeds of the runaway inflation that did such economic damage for the rest of that decade.

The merest hint that Mr Powell is doing Mr Trump’s bidding is enough to corrode the Fed’s independence. Last year Mr Trump called the Fed “crazy”, “loco” and “way off base” when it suggested interest rates had some way to rise. Mr Powell briefly quelled the White House invective when he indicated the Fed would put this year’s expected rises on hold because of the deteriorating global outlook. His explanation was almost certainly sincere. But the appearance he had been cajoled by Mr Trump was damaging.

Were Mr Trump’s partisan duo to join Mr Powell on the Fed board, the pressure to cut interest rates ahead of next year’s election would be intense. Mr Powell might face a choice of turning into another Burns or being replaced by a Trumpian lackey.

Even more is at stake than sound management of the world’s premier reserve currency. Populists everywhere are demonising expertise and eating away at the foundations of liberal democracy. Narendra Modi, India’s prime minister, has compromised the Reserve Bank of India’s independence ahead of the country’s election, which starts next week. Last year Turkey’s central bank resisted pressure from Recep Tayyip Erdogan, the country’s president, to cut interest rates. Mr Erdogan’s onslaught has nevertheless damaged the lira’s stability.

Mr Trump wanted his own pilot to head the Federal Aviation Administration and the White House doctor to lead the Department of Veterans Affairs. Each candidate self-detonated. But Mr Trump did succeed this week in securing the World Bank presidency for David Malpass, an economist whose record is almost as risible as that of Mr Moore. Mr Trump’s direction is clear. He wants to pack the Fed, the courts and the regulatory agencies with yes-men. It takes decades to build an institution’s independence. It takes far less to destroy it. The US Senate should do its duty and reject both Mr Cain and Mr Moore. Neither deserves a hearing.



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