Starting in January, President-elect Trump will have a unique opportunity to pack the Federal Reserve with hard money officials.
There are currently two open board of governors seats, while both Chair Janet Yellen and Vice-Chair Stanley Fischer’s terms will be up by 2018. Crunch the numbers and you’ll see Trump has the opportunity to replace a majority of the board of governors and a third of the Federal Open Market Committee with monetary policy hawks during his presidency.
Call me crazy, but assuming that the Republican-controlled House and Senate stand behind him, Trump just may shock the financial world by shifting this country’s monetary policy in a more hawkish direction.
Repeated Anti-Fed Campaign Rhetoric
For one, Trump’s occasional dovish comments do not match the passion and enthusiasm of his repeated hawkish campaign trail rhetoric. For the past year, the president-elect has been railing against the “false economy” that the Fed has created, as well as the political influence that runs rampant throughout the central bank.
Perhaps Trump’s most scathing attack on the institution came last October, when he insinuated that Fed actions are crippling the middle class without creating any type of benefit to the economy at large. In September, he also attacked the Fed for putting us in a “big, fat, ugly bubble” and for keeping rates artificially low for political purposes, points that he again repeated in the first presidential debate.
The business mogul also promised to audit the Fed within the first 100 days of his administration and even included a criticism of the central bank in a recent online video.
Sound Money Economic Advisers
Trump’s economic advisers paint an even more optimistic picture of his future monetary policy. Some of today’s most reasonable mainstream economic voices are included in his inner circle. These include David Malpass of Encima Global, who co-signed a letter with Jim Grant opposing the Fed’s “inflationary” and “distortive” quantitative easing program; John Paulson of Paulson & Co., who made billions from shorting the housing market before the Great Recession; Andy Beal, a self-described “libertarian kind of guy” who blames the Fed for the credit crisis; and the Heritage Foundation’s Stephen Moore, who told CSIN in 2012 that he is a “very severe critic” of the Fed’s “incredibly easy-money policies of the past decade.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, has even said these advisers are pushing Trump to nominate two “hard money” candidates to fill the Fed’s current vacancies due to their view that “the extended period of emergency policy settings has promoted a bubble in the stock market, depressing the incomes of savers, scaring the public and encouraging capital misallocation.”
The Mike Pence Factor
Perhaps the best news for fans of Austrian economics is that reports have indicated Trump may make his running mate the “most powerful vice president in history.” This is good news, because Vice President-elect Pence is one of the more hawkish voices in the modern Republican Party. While in Congress, Pence expressed regular concern that the Fed was deteriorating the value of the dollar. He introduced legislation to end the dual mandate and even talked up a return to the gold standard.
In a high-profile 2010 speech to the Detroit Economic Club, Pence remarked that “while there is no guarantee that [the Fed’s bond-buying] will succeed in reducing unemployment, it is near certain that the value of the dollar will be diluted.” He went on to say that “the time has come to have a debate over gold and the proper role it should play in our nation’s monetary affairs,” because “a pro-growth agenda begins with sound monetary policy.”
Trump’s election has given hard money advocates the most hope in over 30 years that our nation’s failed monetary policy will be reformed. Mixed with the current hawkish wave that is already percolating in the veins of some FOMC members, Trump’s future appointments can have a huge impact on the central bank’s immediate decision-making.
One can only hope that the president-elect will stick to his guns and do the right thing. Regardless of what he does, however, it will surely be a step ahead of what the Hillary Clinton rubber-dove stamp would have brought to the trading desks.
Tommy Behnke is a Mises Institute alumnus and a former staffer for Sen. Rand Paul, R-Ky. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
