Apr 14, 2019

We're closer than ever to a political Fed

Illustration: Sarah Grillo/Axios

Donald Trump wants to politicize the Fed. One White House source explained his thinking to the WSJ:

"Mr. Trump has selected candidates like Messrs. [Stephen] Moore and [Herman] Cain in recent weeks because he believes they have the interests of his presidency in mind, the person said.
Describing Mr. Trump’s views, the person said, 'I want people who care about me and my presidency and economic growth…because that’s important to the health of the country and his re-election chances.'”

The big picture: Ken Rogoff, one of the most respected technocrats in the economics profession, warned this week that Trump is effectively pushing at an open door. Giving a lecture at the IMF this week under the auspices of the G30, Rogoff warned that the world might be facing "the beginning of the end of central bank independence." None of his four main reasons had anything to do with Trump.

  1. Central banks have become victims of their own success. Historically, the main argument for central banks to be independent has been that without independence, inflation will return. But inflation is below target in nearly every major economy, and long-term inflation expectations have never been lower. No one is worried about inflation anymore, and without that worry, there's little need to keep central banks independent.
  2. Central banks also exist to stabilize the broad economy by cutting rates when it looks like we might be heading into a recession. But they can't effectively do that today, since rates are already so close to zero.
  3. Central banks have often been needed in a crisis, partly because they're home to a lot of institutional knowledge and expertise. But with rates very close to zero, that knowledge and expertise can just as well reside in the executive branch. In the next crisis, fiscal policy, rather than monetary policy, is going to be the first line of defense.
  4. An increasing consensus that national indebtedness can and should be greatly expanded has taken a lot of macroeconomic work away from central bankers and given it instead to finance ministries.

Rogoff's proposed solution to all these problems is for central banks to embrace negative interest rates as a policy tool, with a system of subsidies that prevents regular depositors losing money in their checking accounts. "The countries that do it first will be glad they did it," he said. The central banks that don't? They risk losing their independence entirely.

The bottom line: Central bank independence is almost never enshrined in a country's constitution; it can be lost easily and needs to be fought for. Politicians now have the wind at their back if they want to take back control of their central banks. But, says Rogoff, "countries that do that, including the U.S., if it chooses to go down that path, will live to regret it."

Go deeper

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 10 p.m. ET: 1,014,673 — Total deaths: 52,973 — Total recoveries: 210,335Map.
  2. U.S.: Total confirmed cases as of 10 p.m. ET: 244,678 — Total deaths: 5,911 — Total recoveries: 9,058Map.
  3. 2020 updates: The Democratic National Committee said its July convention will be postponed until August because of the coronavirus. A federal judge declined to delay Wisconsin's April 7 primary election.
  4. Jobs latest: Coronavirus unemployment numbers are like a natural disaster hitting every state.
  5. Public health latest: Anthony Fauci called for all states across the U.S. to issue stay-at-home orders. The FDA will allow blood donations from gay men after 3-month waiting period, citing "urgent need."
  6. Business latest: Treasury Secretary Steven Mnuchin said oil companies are eligible for aid from new lending programs the Federal Reserve is setting up, but not direct loans from his department.
  7. U.S.S. Theodore Roosevelt: Navy removes captain of aircraft carrier who sounded alarm about coronavirus.
  8. 1 future thing: In developing countries, consequences of COVID-19 could be deeper and far more difficult to recover from.
  9. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  10. Other resources: CDC on how to avoid the virus, what to do if you get it.

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Mark Meadows considers new White House press secretary

Photos: Alyssa Farah, Defense Department; Stephanie Grisham, Alex Wong/Getty Images; Kayleigh McEnany, Scott W. Grau/Icon Sportswire via Getty Images

White House Chief of Staff Mark Meadows has privately discussed bringing on Pentagon spokesperson Alyssa Farah or Trump campaign spokesperson Kayleigh McEnany as a new White House press secretary, two sources familiar with the talks tell Axios.

Why it matters: Meadows' start on Tuesday as Trump's new chief presents a chance to overhaul a press shop that's kept a low profile since President Trump ended the tradition of daily press secretary briefings.

CNN: Fauci advises all states issue stay-at-home orders

Dr. Anthony Fauci listens to President Trump speak during a briefing on April 1. Photo: Win McNamee/Getty Images

Director of the National Institute of Allergy and Infectious Diseases Anthony Fauci recommended on Thursday that all states across the U.S. implement stay-at-home orders, at a CNN town hall.

Why it matters: The recommendation stands in contrast to President Trump's calls for "flexibility." Nearly 4o states have issued stay-at-home orders to promote social distancing as a way to combat the novel coronavirus — but the orders vary in strictness and duration.

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