Why Stephen Moore Wasn’t Fit for the Fed

(Bloomberg Opinion) -- The U.S. Federal Reserve’s success in managing the economy depends crucially on its ability to conduct monetary policy without political interference. It’s thus good news that President Donald Trump won’t be appointing economic commentator Stephen Moore to one of the two open positions on the Fed’s Board of Governors. There’s ample reason to believe that doing so would have jeopardized the central bank’s independence.

Controversial public remarks and tax issues aside, Moore has some unique views on monetary policy. Specifically, he has supported the idea of setting interest rates with the goal of stabilizing the dollar price of commodities. Under this approach, the Fed would look to commodity prices as a proxy for inflation. If they were too low, the central bank would lower rates to weaken the dollar and spur economic activity. If they were too high, the Fed would raise rates to strengthen the dollar and put on the brakes.

I’m not a fan of commodity-price stabilization. Americans don’t buy much raw oil and lumber — they buy a basket of consumer goods and services, so those are the prices that the Fed should watch. That said, I think the central bank needs to consider a wide range of perspectives, even those with which I strongly disagree. Hence, I don’t see a preoccupation with commodities as disqualifying for a position on the Fed’s board.

My big problem with Moore is that he doesn’t stick to the policy he espouses. From the middle of 2014 to early 2016, the dollar price of commodities fell by almost 50 percent (remember the oil price crash?). A true proponent of commodity price stabilization should have been calling for the Fed to ease monetary policy by continuing its asset-purchase program and holding off on rate hikes. Yet Moore argued in 2015 for tighter policy — the exact opposite of what would have been needed to counteract the decline in prices.

So, Moore doesn’t seem to be a true commodity-price stabilizer. What, then, is his true monetary policy objective? We don’t know. It seems reasonable to suspect that he is advocating for easier monetary policy now, as opposed to in 2015, because he believes it will help the Republican president’s re-election chances. This is exactly the kind of partisan approach that can erode central bank independence — and the reason I think Moore isn’t fit to serve at the Fed.

To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

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Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

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