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“Top US Economist Stephen Moore: … Powell Should Resign”

Summary:
Look no further for the source of Mr. Trump’s economic proclivities. The entire article title: “Top US Economist Stephen Moore: Time for New Pilot at the Fed – Jerome Powell’s Policies Are Disastrous – Powell Should Resign” (12/19): The Fed has been way too tight. They made a major blunder three months ago with raising the rates. It’s caused a deflation in commodity prices. And I will say this, David, if the Fed raises interest rates tomorrow they should all be fired for economic malpractice. That quote of Stephen Moore was from December 19th. Then, on Sunday (12/23), Moore spoke on a radio show, as recounted by NewsMax: After meeting with President Trump and economist Art Laffer last week, Moore told host John Catsimatidis that Trump is considering firing Powell as chairman of the

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Look no further for the source of Mr. Trump’s economic proclivities. The entire article title: “Top US Economist Stephen Moore: Time for New Pilot at the Fed – Jerome Powell’s Policies Are Disastrous – Powell Should Resign” (12/19):


The Fed has been way too tight. They made a major blunder three months ago with raising the rates. It’s caused a deflation in commodity prices. And I will say this, David, if the Fed raises interest rates tomorrow they should all be fired for economic malpractice.

That quote of Stephen Moore was from December 19th. Then, on Sunday (12/23), Moore spoke on a radio show, as recounted by NewsMax:


After meeting with President Trump and economist Art Laffer last week, Moore told host John Catsimatidis that Trump is considering firing Powell as chairman of the Fed.


“He was infuriated that the Fed, through very tight monetary policy, reversed the economic expansion,” Moore told Catsimatidis. …

…”Donald Trump wanted to drain the swamp,” Moore told Catsimatidis. “Well, John, the Fed is the swamp. The big question now that’s been debated about is whether Donald Trump has the authority as president to replace the Federal Reserve Chairman.
“The law says he can replace the Federal Reserve Chairman for cause. I would say, well, the cause is that he’s wrecking our economy.”

It’s always useful to consider where the Taylor Rule says the Fed should be positioning the Fed funds rate. From the Atlanta Fed’s Taylor Rule utility:

“Top US Economist Stephen Moore: … Powell Should Resign”
Figure 1: Effective Fed funds rate (blue), implied Fed funds rate assuming real natural rate at 2% (red), assuming real natural rate estimated by Laubach-Williams method-1 sided (teal), both assuming 2% PCE y/y inflation target, equal weights on gaps, and no smoothing. Dashed line at Trump quote, and orange shading denoting Trump administration. Source: Atlanta Fed utility, author’s calculations.

In other words, the “no smoothing” versions of the Taylor rule imply tighter — not looser — policies.

A final quote from Stephen Moore writing a mere three years ago helps us understand the malleable nature of Mr. Moore’s economic conclusions. From Forbes:


The Fed is expected to bid farewell to seven years of its zero interest rate policy. Wall Street is petrified because investors have become hyper-dependent on this zero rate scheme and the floods of dollars injected into the economy just as an addict craves crack cocaine. But the high from easy money, just as with any hallucinogenic drug, has been temporary at best and likely damaging in the longer run.


Liberals tend to believe that money creation is a stimulant to the economy and stock market. That’s only true, if at all, in the very short run. Over time, prices and output economy-wide adjust to the larger volume of money. The printing press, alas, is not a job creator. If it were, Mexico and Argentina would be the richest countries in the world, and people would be lining up at the U.S. southwest border to get out rather than to get in. …


Why hasn’t easy money pumped up the economy? The answer is that Fed money creation can’t reverse the effects of bad tax and regulatory policy. We now operate under a policy regime in Washington that punishes investment, risk taking and profits through high tax rates, strangulating regulations–especially aimed at our energy producers, our investor class, our banks, our drug companies and our health care providers. …

My advice: never trust a person who uses the word “strangulating” in a non-medical context.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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