Weaponizing Pick for Fed Board Would Be a Mistake

(Bloomberg Opinion) -- Donald Trump has made sound appointments to the Federal Reserve. That’s one precedent he would do well to uphold.

Nellie Liang, an expert on financial stability, was nominated to the Fed’s Board of Governors by Trump in September, and was broadly seen as an astute pick. She would have been the first Asian American to serve on the board. Liang withdrew late Monday, according to the White House.

Liang cited the prospect of prolonged “professional limbo,” according to a statement cited by the Wall Street Journal. The Senate had yet to vote on her confirmation; the Journal reported that bank lobbyists and some Republican senators resisted her candidacy.

While Trump has never felt restraint in commenting on rates, his criticism of the Fed and its chairman, Jerome Powell, went into overdrive late last year, after Liang was tapped. Trump now has the opportunity to act on that antipathy toward the Fed’s course by selecting a sympathetic replacement. If he can’t fire the Fed chairman, there are other ways to put the skids under him. Let’s just hope Trump doesn’t use personnel as a cudgel.

Liang, as a longtime Fed insider, would have supported the chairman. While governors can dissent on monetary policy, in practice they almost never do. Nay votes, when they come, are typically from the ranks of the Fed district bank presidents, who are selected by the banks themselves. Trump can’t control their selection.

Trump’s rebukes of Powell and the Fed broadly have served no constructive purpose. It’s hard to see how the constant public pressure, bucking decades of tradition, results in better monetary policy or gets Trump the result he wants. The Fed makes its decisions independently from the executive branch — it’s accountable to Congress, not the White House — and few serious observers believe Trump’s Twitter tantrums play any real role in policy setting.

But the abuse does create a climate where faith in the decisions of yet another institution are subject to greater scrutiny and controversy. Adding further fuel to that by picking a forceful public advocate of lower borrowing costs inclined to challenge Powell would hopefully be seen for what it is: a transparent effort to undermine the chairman and the independence of policy.

In the past couple of years, central bankers have shown themselves to be the adults in the room time and again as the political classes have flailed about. And in the unipolar financial world, the dollar still reigns — which means the Fed’s authority shouldn’t be tested. The People’s Bank of China has made important strides, but the yuan isn’t close to supplanting the dollar. European officials who once championed the euro as a rival to the buck seem to have given up that pipe dream as well.

So far, Trump’s Fed choices wouldn’t look out of place in the White House of, say, a Hillary Clinton or Jeb Bush. Powell, whom Trump chose for chairman in 2017, was appointed a Fed governor by Barack Obama. Vice Chairman Richard Clarida served with distinction in the Treasury under George W. Bush. Both earned wide bipartisan support in the Senate during their confirmation processes.

Trump takes pride in dissing convention. In weighing a replacement for Liang, however, he would do well to abide by his own tradition of solid central bank picks. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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