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This Might Be How Trump Picks a Fed Chair
As I wrote yesterday, Donald Trump used to talk about the “highly political” Fed boss Janet Yellen. He has suggested Yellen probably wouldn’t get a second term heading the central bank. No more inflating the “false economy.”
But now this in the WSJ:
Ms. Yellen was a frequent target of Mr. Trump’s during the campaign, when he criticized her for keeping interest rates low. Asked if Ms. Yellen was “toast” when her term ends in 2018, Mr. Trump said, “No, not toast.” “I like her, I respect her,” Mr. Trump said, noting that the two have sat and talked in the Oval Office. “It’s very early.”
Of course those comments are hardly a guarantee of Yellen 2.0, but I think this take from Scott Sumner is reasonable:
Many commenters have taken it as a given that Trump will replace Janet Yellen next year. I certainly think that’s possible, but I’ve also argued that he might reappoint Yellen. Now that seems a bit more likely: The reason is simple. When Trump asks his advisors for some possible names to replace Yellen, he’ll be given a list of conservatives. Then Trump will ask whether interest rates will be lower under Yellen or under the conservatives. The advisers will respond “Yellen”. Trump will then say “Then why don’t we just stick with Yellen?
It really might not be a whole lot more complicated than that. Potential center-right Fed picks — the folks President Jeb Bush might have considered — tend to be more hawkish than Yellen. Here is what John Taylor told a congressional panel last month: ” … the Fed should normalize policy and get back to the kind of policy that worked well in the past.” And Martin Feldstein in the WSJ last October: “All of this suggests a willingness to continue the current dangerous policy of low interest rates—regardless of its effect on asset prices, inflation and financial stability. It is past time for the Fed to shift gears and normalize interest rates more rapidly.” And Kevin Warsh, also in the WSJ, last summer: “The conduct of monetary policy in recent years has been deeply flawed.” Finally, Arthur Laffer, in the FT last December: “Markets really know how to give you prices and Janet Yellen doesn’t. She’s never been forced to bear the consequences of her own actions.”
Published in Economics
This is one area where I am sure Trump has no understanding, but then which President did over the last century or so, event the experts haven’t a clue or at least can’t agree on much of anything. The politics are to appoint a person seen as a conservative and I’d guess he will. I hope it’s an Austrian school economist, not for their monetary policy views, but for their skepticism about what we can actually know about the macro economy at all.
If he and the Fed can get inflation to 0.0 percent and keep it there, it will be good.
I think anybody that takes anything Trump says seriously is naive. Trump is constantly negotiating, constantly floating trial balloons to see what he can do and not do. What he says generally happens in some form but the specifics are always in flux.
When I was listening to the latest Libertarian podcast, Epstein said something like “inflation may be a little too low.” What does that even mean? Why is any inflation good? It’s better for the government to steal from us slowly rather than quickly? Why is the inflation target rate 2% rather than 0%?
Because deflation. Ask Japan.
It’s not good. I suppose stealing slowly is better than quickly, but the government should not be stealing from us at all.
This.
It is better to err on the side of slow inflation that is easily adapted to than it is to run the risk of deflation. People always forget about deflation.
A look at inflation rates in Japan suggests that they got deflation because they had inflation. And despite the experience of the last 10 years, having a little bit of inflation has usually been like being a little bit pregnant.
But inflation has always been a good way of making the rich richer and the poor and middle class poorer, so I guess there is that. It has helped give us Trump.
Given that inflation has existed for essentially the entirety of the life of the modern economy this doesn’t really hold true.
It doesn’t?
They got inflation due to policy, not as a natural consequence to inflation. If that were true, then the US would have had a 10-20 year deflationary cycle after the what I will term “wicked high” inflation in the late 1970’s.
And I’m not sure how inflation makes rich people richer and poorer people poorer. Inflation impacts every single dollar out there, no matter who’s holding it.
Inflation makes savers poorer.
People who own inflation-proof assets do well under inflation. The others don’t. In the last several years those that have done well have included those whose equity holdings have been propped up by Fed policy.
Personally, I’ve been about in the middle of the divide between those who’ve done well under it and those who haven’t. The Bernanke/Yellen Bubble has done well for my retirement savings. But it’s not healthy for the country the way people have been left behind.
People in deflationary economies say much the same things about inequality. It helps the rich! Let’s redistribute wealth with inflation! Once inflation begins, they start saying the opposite: Inflation helps the rich! Bring on the deflation!
Who knows, maybe both are true. Inflation should be 0.0 percent.
Sure. And all my approach shots should fall in the hole. But just the same, I’ll aim right of the pin on some nice level ground and not risk the sloping ground left of the pin heading down to the big pond.
If you have knowledge of the magical formula by which this can be accomplished by all means let us know.
Just take the magic formula that Yellen is is using, but change the number 2% to 0%.
Inflation is easy if one accepts stagnation. The Fed monazites the debt then sanitizes the money creation. The Government promotes stagnation as it represses the economy and extracts rents for itself and its supporters. While inflation is very bad, stagnation is as well but managing price stability and allowing growth requires skill and understanding. It’s so much easier to just rip everyone off. This will take some time and it can’t be done with Yellen or anyone of that school that thinks they can manage our economy with a few control knobs, and is willing to ignore the sources of stagnation and decline.
Rich people don’t save?
Inflation makes everybody poorer – try a net present value calc, on an investment in anything, and use 3.5% as the inflation rate. Doesn’t matter if you’re saving money or investing it. Savings *is* investment, despite its anemic rate of return.
Well, yes, rich people save, and inflation makes them poorer. I thought that’s what I said.
I’d do a net present value calc if I knew what it was.