Can Trump “bend the Fed to his will?”

Can Trump “bend the Fed to his will?”

When Fed governor Kugler resigned the Wall Street Journal which should know better had the headline “Trump Just Got a Fresh Shot at Bending the Fed to His Will.” No such thing, Wall Street Journal. Trump currently have two appointees, Christopher Waller and Michelle Bowman both of whom apparently want to be named chairman which induced them to vote for a cut in the Fed funds rate at the last Open Market Committee Meeting. Bowman has since gone public and says that she will vote for again for a cut at the September meeting. Expect Waller to do so too. Trump just named his Council of Economic Advisors chief Stephen Miran to fill Kugler’s term. But he likely bwill not be confirmed in time for the September meeting and may not even be confirmed by the time Kugler’s term expires in January if the senate democrats keep dragging their feet on Trump’s nominees.

But Miran may be an indicator of what type of person that Trump will ultimately chose although I think it is a mistake to nominate someone now and have to nominate some other person later. Miran is all in on Trump’s tariffs which landed him the job at the Council of Economic Advisors. Miran also feels that the reserve status of the dollar keeps it overvalued leading to trade imbalances. Of course, this argument would only apply to large developed countries that are trading partners and not to places like Syria and Myanmar. So Miran wants to devalue the dollar so as to weaken its status as a reserve currency. He has also advocated putting a tax on foreign holdings of Treasury securities. I am not going to dissect all this except to say that I thought Trump liked the dollar’s reserve status which allows the US to borrow at lower rates. Trump has also threatened to impose punitive tariffs on the BRICS nations if they attempt to counter the US dollar. That seems contrary to Miran’s positions.

But will a new fed governor allow Trump to “bend the Fed at his will?” Not hardly. The Journal must have been inflicted by the President’s poor math. Another appointee gives him three seats on the Open Market Committee. The committee has twelve members, the seven governors, the president of the New York Fed and four rotating reserve bank presidents. So even if the three appointees bend to Trump’s demands they will be outvoted 9-3. Also, I bet that after Trump names his choice for chairman that Bowman and Waller will again assert their independence from the president. 

I know the Fed. If somehow Trump were to install a lackey who had no independence from the president, I almost could guarantee that that person would face open resistance from the rest of the committee. Now that should really shake up markets! The president may then try to fire the other governors. But he will fail – just see the decision on the National Credit Union Administration board members. He could try to fire the reserve bank presidents. However, the authority to remove them rests with each reserve bank’s board of directors or with the Board of Governors itself. Neither would be likely.

So the Journal’s headline is misleading and is indicative of the growing sloppiness and inaccuracy in reporting of that once venerable newspaper.