Conservative economic commentator and political activist Stephen Moore faces a tough battle for confirmation to the Federal Reserve’s Board of Governors due in part to controversies around his past writings about women, a debt related to a tax dispute with the IRS, and revelations from a contentious divorce.
Moore, a fellow at the conservative Heritage Foundation, says he still has the support of President Trump and plans to pursue nomination to the Fed, despite what he calls “a smear campaign” of negative coverage and signs that Republican senators are hesitant to support him. Moore gave an exclusive interview to the Washington Examiner to talk about what he wants to do at the central bank, and what his prospects are for confirmation.
This interview has been lightly edited for length and clarity.
Washington Examiner: What do you hope to bring to the Federal Reserve Board of Governors that isn’t present?
Stephen Moore: One of the problems I’ve had with the Fed over the last several years, if not several decades, has been that the economists over at the Fed seem to think that too much economic growth and too much wage increases for workers causes inflation, and I just don’t think that’s true.
I just don’t think that’s true, I think that the economy can grow at a brisk pace of 3, 4, 5%. And that that actually will reduce inflation when you have more growth and output and that pushing up wages for workers is a beneficial thing, not something that should be attacked.
Do you agree with the president’s call to cut interest rates now?
Moore: I’m on record for saying that the December rate increases were misguided, so I’m certainly in favor of canceling the rate increase that occurred in December. I’m not sure about whether I’m in favor of the full 50 basis point decline, I’d have to look more closely at that.
I think that Trump is saying that he wants 50 basis points [cut from interest rates] and I’m not sure I’m there yet.
And he also called for the Fed to consider quantitative easing, is that an action you would support?
Moore: I’m not sure. I’d have to look at the evidence. I would be evidence-based, so when I would get over there I would want to look at that. They have access to much more economic data … than I have at my fingertips.
I like to look at commodity prices as a first indicator of where prices are headed, and if I saw a decline in commodity prices, everything from steel to copper to oil to soybeans, I would be concerned about that. I wouldn’t rule it out but I wouldn’t say I certainly would be in favor of that right now.
You know, I’m not going to be on the board for another probably four or five months so the world’s going to be a different place when I get there than it is today.
You’ve been critical of the notion that the Fed can directly encourage economic growth. In a 2014 column for National Review you wrote, “Why do so many Americans — from liberal activists to Wall Street traders addicted to easy money — still believe that the Federal Reserve Board chairwoman, Janet Yellen, can flip an ignition switch to propel the American economy into overdrive?”
You go on to criticize low interest rates and quantitative easing. What has changed in your thinking between 2014 and now?
Moore: It has. First of all, the core of my belief is that the Fed only controls what happens in the nominal economy. In other words, the Fed’s effect on the economy is to affect prices, it doesn’t affect people’s willingness to work, or — you can’t create economic output by printing money, right?
That was the point I was making, the Fed controls prices. All the other economic policies, taxes, deregulation, energy policy, welfare policies, trade policies, they affect the real economy, how much goods and services are produced. So my point about what I said, the Fed doesn’t have an ignition switch, that’s absolutely true, the economy is driven by factors other than the Fed.
So the question is, what can the Fed do? I would make the case that the most important impact of the Fed is to make sure the dollar remains strong and stable, the currency is not cheapened, and that we don’t have inflation or deflation.
Looking back at 2014, as I look at the evidence now with 20/20 hindsight, I think if anything the Fed was probably too tight in that era because commodity prices were actually falling a bit in that era.
I’ve admitted during that period I was probably wrong in being hyper-critical of the Fed’s [quantitative easing] activities.
What was going on there that I didn’t really appreciate the importance of, is that the Fed instituted a policy around 2009 or 2010, I don’t remember the exact date, when they started paying interest on reserves, so bank holdings. So that kind of short-circuited the effect of quantitative easing because by paying interest on bank-held reserves, what the Fed did in effect was pay banks not to lend money.
I would be in favor of the Fed lowering, right now, the interest they’re paying banks on holding reserves, because I think that would actually provide more dollar liquidity to the economy, which I think would be beneficial.
So I guess you would also be against raising the countercyclical capital buffer?
Moore: What’s that?
The countercyclical capital buffer?
Moore: You mean the capital requirement for banks?
Basically, yeah. The Fed can require banks to hold more capital to avoid financial shocks similar to 2008.
Moore: I’d have to look into that more closely. One of the things that I have to bone up on more, frankly, is how the Fed regulates banks. And I’m starting to educate myself about that. I’m much more of an expert on interest rate and monetary policy than I am on the regulatory policies of the Fed, so I’d have to educate myself on that.
Do you consider the current call for lower interest rates and quantitative easing Keynesian?
Moore: No. If anything is good where there’s been so much hyper-attention to my nomination, it’s that people are starting to focus on what I’m saying about the Fed, which is good.
I’m infusing I think a new idea over at the Fed … which is that growth does not cause inflation. That’s contrary to the Keynesian view, they believe in this Phillips Curve idea, where you get lower unemployment that causes inflation. It’s almost one of the most idiotic ideas in the history of economics.
If you’re looking at prices as I do, are they stable or are they rising or falling? If prices are rising, that means inflation is happening and that means that the Fed should raise interest rates. If prices are falling, then that means the Fed should inject more money into the economy. It’s not complicated, really. It’s just keep the prices stable.
The reason I like commodities even more than looking at consumer prices, or producer prices, is we know in real time, instantaneously, what’s happening with the price of commodities. You can go on your computer screen right now and find out what happened five minutes ago to prices of commodities.
Some of my friends support this idea of GDP targeting, I think that’s not a very ideal way to do this because we don’t know what GDP is for six months or so afterwards.
With regards to that commodity price indexing that you want to do —
Moore: It’s called the CRB index, but there are several, I’m not even sure which is the best one to look at. But I just like indexes, it’s sort of the canary in the coal mine. It’s the first lead indicator of where prices are headed.
Would something like the price of oil be a significant driver?
Moore: Yes.
Would that mean last year, when the price of oil rose, that the Fed should have raised interest rates?
Moore: That’s a great question. One of my concerns about the commodity index, even though I’m saying I’m for it as an indicator, is that it’s not perfect.
Unlike the gold standard, which is just looking at gold price, what you can do with a commodity index, you don’t have to just look at gold, you can look at anywhere between 18 and 30 commodities, it’s not being driven by just one commodity.
There is some evidence that the commodity index is overly weighted by energy costs, and if that’s the case, then it’s a problem because we don’t want our dollar price system to be dictated by what OPEC is doing.
“Oh, then we’re going to let Saudi Arabia determine what happens with our monetary policy.” And my response to that is no, I’m not just looking at oil, I’m looking at soybeans, I’m looking at copper, I’m looking at wheat, I’m looking at lumber. OPEC can’t control those prices, right?
That’s why I like a broad commodity index because energy will certainly be a big part of it but it doesn’t drive a commodity index.
Do you have a sense of where the cut-offs would be as to what to include and how to weight them?
Moore: The only problem I have with the CRB index is I think there’s only 18 or 20 or so commodities. I’d prefer to use 40, I’d prefer to use a much broader range of commodities because then not a few of them will dominate the index.
One thing I can never understand is sometimes when [the Fed talks] about floor prices, they say, we’re going to look at what’s happening with consumer prices, but we’re going to take out food and energy costs. Why? Food and energy are two of the most important components of prices and they’ll say ‘we take those out because they’re too volatile’ [in price]. Well actually you would have less volatility if you indexed the dollar to these commodities.
Consumer prices are a lag indicator, commodity prices are a real-time indicator.
So if the Fed does what the president wants and lowers interest rates, does the Fed have enough room to cut rates if there is a slow down next year? Basically, would the Fed have enough bullets to fire if they use them now?
Moore: This is a really stupid idea. It’s amazing how many stupid ideas prevail in monetary policy.
Back in the summer of 2018…the economy is perfect, it’s beautiful. And then the Fed said it needs to raise rates. And then we said, why? Why would you raise rates, why would you change a winning strategy? And they say, “we need to do this ‘normalize’ interest rates” — I still have no idea what normalize interest rates means — “so we have buttons to push and levers to pull so we can deal with the next recession which we ourselves are causing.”
I believe 4% growth is sustainable with no inflation. There is absolutely no rationale for causing an economic crisis so that we have the tools to deal with it.
To play devil’s advocate, during the Reagan administration you had higher growth rates during certain years than we’ve seen in the last decade, and then interest rates set by the Fed were still in the eight to 12% range. So what’s different now?
Moore: So right now we have low interest rates, the lowest interest rates that we’ve had in a long, long while. So right there, low interest rates are a good thing.
Especially when you talk about the short-term rates, those aren’t really important. It’s really more like what happens to five-, or 10-year, or 30-year interest rates. Those are really low.
Now what drives low long-term interest rates? The two most important factors that drive low long-term interest rates are one, inflation, and two, inflationary expectations.
Let’s take the 10-year [Treasury bond], because that’s a pretty long-term bond. If people are willing to buy bonds at a 2.6% interest rate, do you think anyone who buys at a 2.6% interest rate is worried about inflation? No, of course not!
If you thought that inflation was going to be 3% over the next 10 years would you buy a bond at 2.6%? It’s very rare, only at times of extreme risk aversion would someone buy a bond at a negative real interest rate.
So my point is that the reason interest rates are so low is that people are expecting very little or no inflation over the next 10 years and I would make the case the markets are much better indicators of where the interest rates are then a bunch of PhD economists, right?
So to say we have to raise interest rates to control inflation, if you look at the…spread of real versus nominal interest rates, it’s tiny, so nobody is expecting inflation, so the Fed, why are they worried about it? I worry about it when it’s out of control, but there’s no indication that prices are out of control. In fact they’re very tame.
In fact the last four months, according to the Wall Street Journal front page a few days ago, the Fed has been missing their target. They target 2% consumer price-wise, but they’re slightly below that. So where’s the inflation? Somebody show me the inflation.
So when I said interest rates before, I meant the interest rates that the Fed was setting. The federal funds rate.
Moore: This is another fallacy, the Fed sets interest rates. Yeah the Fed sets the federal funds rate, but it doesn’t set the 10-year [Treasury bond].
Sure.
Moore: It’s set by the market, as it should be. The 30-year mortgage is not set by the Fed, it’s set by the demand and supply of credit.
That’s why by the way, I don’t think that the Fed should be setting interest rates. This is another where I’m kind of unique. I think the Fed should be targeting prices not interest rates. Let the interest rate fall where it should based on the free market.
So basically the Fed would get out of monetary policy, though, if it doesn’t set the federal funds rate, right? Because that’s what it sets for banks for short-term liquidity.
Moore: What I’m saying is they should target prices so they’re going to set the interest rate so they’re going to set the interest rate based off of whether prices are rising above or below their target. It’s very simple it’s not complicated, right?
By the way, one benefit of this ‘rule’ — it wouldn’t be an iron-clad rule, but it would be a rule announced by the Fed, that this is what we’re going to do.
And if everybody in the world economy, all 6 billion people, knew that’s what the Fed was doing then you’d take all kinds of uncertainty and risk out of the economy, right? I’m much more in favor of a much more rules-based Fed policy rather than people making it up as they go along because that’s much more destabilizing for the economy.
Earlier you said you wanted the Fed to get out of setting an interest rate as well, so you’d want to do away with the federal funds rate?
Moore: No, no, no, the federal funds rate is what would be adjusted. In other words you’re not targeting an interest rate, in other words you’re not saying we think the interest rate should be three or four or two or five or whatever it is, you’re saying you’re going to adjust that interest rate based on what is happening to prices in the real economy.
And the main difference, it sounds like, from what they’re doing now to what you want them to do is factoring in those commodity prices?
Moore: I think their problem now is the Phillips Curve problem… And that’s problematic because there is no limit to growth in my opinion. With the right set of policies we could grow [annual GDP] 5% real, if you get everything right with the real economy and got more worker productivity, and more people in the workforce…and more innovation and capital investment, you know, God, the economy grew by like 7% under Reagan, for four or five quarters.
I also challenge this Larry Summers idea that there is secular stagnation. That’s a recipe for failure. Trump does say, “we want 5% growth” — that’s a stretch, in my opinion. I like that he’s optimistic…but why can’t we have 4% growth? Why?
But again, with Reagan, you saw high growth with higher interest rates set by the Fed too, so again, what’s different this go-round?
Moore: It was a totally different world back then, I lived through that.
What was the cancer cell of the economy in the 1970s?
It was inflation.
Moore: Of course, it was destroying the economy. That’s why I laugh when people say I’m a “dove.”
I’m not a dove — I hate inflation. I hate it. If I see any whiff of inflation, I’m not going to — inflation kills investments and so on. One of the reasons Reagan was so successful was they sweat inflation out of the system, the way they did that was by raising rates.
Have you had any recent discussions with the president about how he wants you to approach the job?
Moore: No, I haven’t, I mean I’ve talked to him over the year — the last four years about it. Almost every meeting I’ve had with him, there have been other economists there, especially over the last year or so he’s been very upset with the Fed, he’s made no secret about that. But I have not talked to him about monetary policy recently.
What was your last conversation with him —
Moore: He’s made it very clear in newspapers and his public statements what he thinks about the Fed.
The White House said they’re going to review your past writings, have you spoken with them about that and any concerns they might have?
Moore: I spoke to people at the White House I think on Monday or Tuesday, they said: “Full speed ahead, get your paperwork in,” that kind of thing.
I can understand why they’d be concerned about some of the smear tactics that have come up, and some of the things I wrote 20 years ago. I’ve always said if people want to dig back…they can dig up things I’ve said, and if it’s about something I wrote 25 years ago that is politically incorrect or problematic, then I can see my nomination being in real trouble. If it’s about…a new view of how the Fed should operate and my economic ideas and qualifications then I think I will win.
Incidentally why do you think it is that CNN and the Washington Post are looking into what I wrote 25 years ago? Because they realize if it’s just about my economic ideas I’ll get 60 votes. So they have to look at my divorce and they have to look at my Christmas letter [column]s, and things like that because they can’t beat me on my record.
You’ve mentioned before that you feel that it’s a smear campaign. Some of the Republican women in the Senate have expressed hesitation at your nomination, Sen. [Joni] Ernst [R-Iowa], came out and said that she’s not going to support you —
Moore: She did?
Yeah, she did.
Moore: Today?
Yeah, today [Wednesday]. She’s kind of been hedging that way for a couple days. What’s your message to them to get their support and maybe assuage the concerns that they have?
Moore: I like Joni Ernst, I know her a little bit, I have a lot of respect for her. I’ve always said if this becomes a very difficult vote for them I don’t expect them to walk the plank. If it’s a very difficult vote for Joni Ernst or Susan Collins or any of these other senators I would withdraw. I wouldn’t expect them to put their Senate seat in jeopardy.
But look there’s three or four months to go here, so the world could be a very different place a month or two from today.
Look, we all care about women. I want women to do really well. Look at what we’ve done, we’ve created the lowest unemployment for women in 50 years. We’ve created wage increases for families that benefit women.
I guess my response to any of the women who are concerned about it is growth is a women’s issue. It’s the most important women’s issue. We care about wages, we care about jobs, we care about people being able to pay their bills, then we need growth. We need stable prices, that’s what I’m for. We’ll see whether they would agree with that, but that’s not a spin, it’s true.
What’s more important, what I wrote 25 years ago or what I can do to make the economy grow faster to benefit women, blacks and whites, people of color, whatever. It’s all about growth and prosperity, not about my [column] from 25 years ago.
You’re sort of unusual for a Fed candidate in the sense that you were pretty active in politics and running the Club for Growth. Do you think the Republican primary activity of the Club during your tenure might be impacting your support in the Senate as well?
Moore: No, because I haven’t been involved in the Club for Growth, I mean I founded it, but I haven’t been involved with it in about 15 years.
We were almost exclusively involved in House races — and we did a few Senate races. But we helped people like John Thune get elected, and Marsha Blackburn get elected, so I don’t think that’s going to be a problem for me.
Do you plan on reaching out to Democrats to try to get any support from them?
Moore: Yes, I’d be thrilled. The answer is yes, the moderate Democrats in the Senate, I do plan on reaching out to them.
What’s your message to them, given your past as a conservative activist, to address any concerns they might have about whether you’ll take a partisan approach to the Fed, given the fact that it’s meant to be a nonpartisan institution?
Moore: Yeah, if I were a Joe Manchin or someone like that I could see that being a concern. I would say, just look at my record, I’ve been for lower taxes, I’ve been for sound money, free trade, all these things.
My strongest selling point, frankly, is what’s happened in the economy for the last two years. We’re going to get another monster jobs report on Friday, on top of a 3.2% growth [annualized GDP rate in the first quarter]. I mean I was one of the people who really helped design — there were a lot of people — but we’re seeing an economic revival that is just fantastic.
So they’re going to say, “You were just the Trump economist.” Yeah, I was, and look what happened.
