Senate Banking Chairman Aligns With Trump on Fed Rate Cuts

(Bloomberg) -- Senate Banking Chairman Mike Crapo said Tuesday that he thinks the Federal Reserve should cut interest rates to boost growth, aligning him with President Donald Trump and his latest choices for the Fed board, Stephen Moore and Herman Cain.

"I personally think that we’re at a point where they could be reduced a little bit now," the Idaho Republican said. "I just think that at their current level they are creating a little bit too much of a dampening on the economy."

The Senate Banking Committee chairman’s comments are a significant turn in Powell’s peaceful relationship with Congress, which he has tried to cultivate with frequent visits. Unlike the White House, which has been relentless in its attacks on the Fed since December, Senate Banking along with House Financial Services has direct oversight authority over the central bank.

Both committees have the power to alter the Federal Reserve Act through legislation and until now have let Powell do his job without much criticism of monetary policy. The comments may also show Crapo in sync on the subject with Moore, a conservative economist who in a March 13 Wall Street Journal opinion column called the central bank “the last major obstacle” to Trump’s economic agenda.

Fed Picks

Moore advised the Trump campaign on economic policy and is currently a visiting fellow at the Heritage Foundation. Cain, Trump’s other controversial Fed choice, went from calling higher interest rates "very good news" in 2017 to telling Bloomberg News earlier this year he was concerned the Fed had gotten too aggressive in rate hikes and he was more worried about deflation than inflation.

Crapo would preside over confirmation hearings for both men, who would each face difficult confirmations if Trump follows through on plans to nominate them.

"If and when a nomination is made, we will then proceed as we have with all nominations, to do the vetting and hold a hearing and process them," Crapo said, declining to comment on their prospects.

Confirmation Concerns

Senate Republicans, usually reluctant to go against Trump in public, have begun raising questions about the prospect of a Cain nomination.

Senator John Thune, the No. 2 Republican leader, said the Senate GOP leadership team and some individual members have been warning the White House that Cain could have a tough time getting confirmed.

“I’m not saying that he couldn’t get there, but he starts off with some concerns and we’d have to confirm him with all Republican votes,” Thune said. “There aren’t going to be Democratic votes for him. That’s what he would be facing going into the process.”

Trump’s latest Fed choices also have been roundly criticized by economists of all stripes.

Greg Mankiw, a Harvard University economist and former adviser to George W. Bush, wrote on his blog that Moore “does not have the intellectual gravitas” for the job.

Scott Sumner, director of the monetary policy program at the libertarian Mercatus Center at George Mason University, has questioned both Trump picks. “Do the candidates have good judgement on policy?” he wrote on his blog, The Money Illusion. “I am not aware of any coherent economic model, liberal or conservative, which would justify calling for tighter money in the early 2010s and easier money today.”

Economic Risks

Economists surveyed by Bloomberg expect the economy to expand 2.4 percent this year. Monetary policy is just one risk. Trump’s trade wars, slowing growth in Europe, and Brexit also top the list of concerns. U.S. economic data in the first quarter has been distorted by weather and the government shutdown. However, job growth remains strong, with the economy adding 196,000 jobs in March.

In 2017, Crapo criticized then-Fed Chair Janet Yellen, complaining she had been too slow to raise rates. Trump has called on the Fed to cut rates and frequently criticized their rate hikes, saying they are a drag on growth.

The Federal Reserve raised rates four times in 2018, but paused at its first two meetings in 2019 saying it will be "patient" as it assesses the need for any additional changes in the policy rate, now in a range of 2.25 percent to 2.5 percent. Forecasts released by Fed officials last month showed no hikes at all for this year. Minutes of the March meeting will be released Wednesday, providing further insight into the debate among Fed officials.

To contact the reporters on this story: Steven T. Dennis in Washington at sdennis17@bloomberg.net;Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editors responsible for this story: Kevin Whitelaw at kwhitelaw@bloomberg.net, Joe Sobczyk

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