President Trump has found great success with his traditionally conservative approach to cutting taxes and slashing regulations. But his recent nomination to the Federal Reserve Board of Governors has left some of us scratching our heads.
Trump has nominated Nellie Liang, an economist who served more than 30 years at the Fed before taking an appointment at the Brookings Institution. While finding a candidate with that much relevant experience is admirable, some of her policy stances are not — and they’re decidedly at odds with the president’s.
While Trump has called Dodd-Frank “a disaster” and sworn to undo its growth-killing regulations, Liang is an obdurate Dodd-Frank apologist. She insists that it hasn’t hurt lending and credit has been growing, even though the Fed’s own small business survey refutes her, reporting that 61 and 55 percent of startups and small businesses respectively couldn’t get all the money they requested in 2017.
One Frankenstein’s monster created by Dodd-Frank was the Office of Financial Research, which Republicans want to defund, because it (1) collects too much data on US citizens, (2) is susceptible to cyberattacks, (3) creates too much of a bureaucratic burden on the economy, and (4) could not possibly prevent a future, hypothetical economic downturn. But Liang defends it.
While House Republicans want to exempt regional banks from unrealistically strict stress test requirements, she has said this plan to help smaller banks would “just be, I think, terrible.”
Liang has downplayed concerns about how the Volcker rule has increased the costs of trading bonds — one of the most conservative asset classes in existence — even though one of the Federal Reserve’s own studies found Volcker had done just that. She has been an ardent defender of the Fed’s severe CCAR risk-assessment scenarios, even though Fed oversight officials are loosening those restrictions — a tacit acknowledgment that they have gone too far.
In one Brookings article, Liang opposed a host of recommendations by Trump’s own Department of Treasury, including those which would (1) implement the countercyclical capital buffer to the Comprehensive Capital Analysis and Review, (2) reduce the frequency of supervisor-run stress tests, (3) streamline capital requirements and supervision, (4) require the Fed to release its models, scenarios, and other materials for public comment, and (5) exclude cash and Treasury bonds when calculating debt or equity the leverage ratios.
For institutions that maintain just a 10 percent leverage ratio, Treasury and House Republican proposals to provide an off-ramp from prohibitive regulation — and Liang wants to stonewall.
The primary way a president influences the Fed policy comes through his nominations, as the Wall Street Journal wrote, and Trump has enjoyed a rare opportunity of filling six slots early in his term. But once nominees are confirmed, they’re their own agents.
In that same WSJ article, Nomura Securities chief economist Lewis Alexander averred that, “If the Trump administration wanted greater direct influence over the Federal Reserve, nominating a well-respected former Federal Reserve staff member [Liang] would not be the way to achieve that objective.”
Liang’s appointment essentially cements a regulatory framework at the Fed put in place under Obama, which might return us to his “new normal” of sluggish growth. Some have even asked — with dread — if Liang is the first nomination of the Elizabeth Warren administration.
Where our economy is concerned, Trump has earned the benefit of the doubt. Yet where Liang’s nomination is concerned, there is certainly little benefit and a lot of doubt. The nation deserves — and the president can do — much better.
Jared Whitley is president of Whitley Political Media.
