Potential Obstacles Facing Trump's Nominee for the Federal Reserve Position Within the Central Bank
Stephen Miran Challenges Federal Reserve's Independence Model
Stephen Miran, President Donald Trump's nominee for the Federal Reserve's top ranks, has expressed critiques of the Fed's traditional notion of independence in a recent CNBC interview. Miran advocates for a model where the Fed has tactical independence on monetary policy but is more accountable and influenced by elected leaders.
In the interview, Miran argued that the Fed’s independence is overrated and that informal ties between the Fed and the Treasury have already blurred the line between fiscal and monetary policy. He believes that the current model grants the Fed power without sufficient accountability.
To address this, Miran, along with Dan Katz, has proposed sweeping reforms. These include subjecting the Fed’s budget to Congressional appropriations, shortening the terms of Fed governors, limiting the Fed's role strictly to monetary policy, instituting a prohibition on Fed governors serving in the executive branch for four years post-tenure, and promoting more open debate within the Fed.
Jerome Powell and other mainstream Fed officials, however, generally defend the Fed’s structural independence as vital to enabling it to pursue long-term economic stability goals free from short-term political pressures. The Fed under Powell has sought to maintain an independent stance by keeping its budget and appointments insulated from political control.
Miran's views depart sharply from Powell's stance. If confirmed as a Fed governor, Miran could potentially influence the Fed's decisions on interest rates with his unconventional views on tariffs. Miran believes that Trump's widespread tariffs on US trading partners won't stoke inflation, a view that suggests the Fed should have already cut interest rates this year.
Miran's nomination to the Federal Reserve's top ranks would only last until January 31 if confirmed by the Senate. Economists polled by data firm FactSet expected to see an annual gain of 2.7% in July, but the latest data has revealed some weakness in the economy. The labor market is showing signs of sputtering, which could potentially lead the Fed to cut interest rates as soon as next month.
Miran's views on the economy may put him out of step with the rest of the Fed's board. Consumer prices in July rose 2.7% from a year earlier, according to the latest Consumer Price Index data. Daniel Altman, an economist, has stated that there are still Fed governors concerned about inflation.
Miran co-authored a paper last year arguing against the Fed's independence, advocating for Fed officials to be subject to at-will dismissal from the president, aligning more with Trump's views on interest rates than with the Fed's current stance on independence.
Critics of Miran’s approach, including some in financial and legal circles, consider his vision to be “myopic” and a threat to the Fed’s effectiveness by diminishing its autonomy and supervisory authority. Meanwhile, Miran views a Fed with more political oversight and internal debate as healthier and more accountable.
In a recent CNBC interview, Miran softened his stance on the Fed's independence, stating that independence is of paramount importance. However, his proposed reforms could potentially reshape the Fed's role and decision-making process if confirmed by the Senate.
References:
- The Economist
- Bloomberg
- Politico
- New York Times
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