President Donald Trump's potential nominations of Stephen Moore and Herman Cain to the Federal Reserve could be the beginning of a politicization of the central bank, according to Barclays' chief U.S. economist.
div > div.group > p:first-child"> "When it comes to nominees, most people that get nominated to the board, regardless of what party is in power, they tend to get nominated based on expertise, and they're largely on the fringe of politics," said Barclays economist Michael Gapen, adding they are often economists from academia, government or the private sector.
The economist pointed out that both Moore and Cain seem to have changed their prior hawkish views to fit with the Trump administration's call for easier Fed policy. Trump has repeatedly criticized the Fed's interest rate increases and has said the Fed should now cut rates and be more accommodative. The Fed has backed off its forecast for more rate hikes, but officials have not embraced the idea of rate cuts.
"Cain said he fears deflation more than inflation, and Moore has advocated for a 50 [basis point] reduction in the target rate for the federal funds rate," Gapen said, noting that their"easy money" policies contrast with their previous"hard money" views. "Moore's criticism of Fed balance sheet policy was driven, in part, by concerns over currency debasement," Gapen said."Shifting to a gold standard would eliminate exactly the kind of discretionary policy action both are recommending now."
"I think it's a very big benefit to the U.S. economy and the financial markets that we have a strong and independent Fed, and I hope that continues," said Ed Keon, chief investment strategist at QMA.
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