Don Luskin Speaks: On Trump’s Fed Nominees

Donald Luskin, chief investment officer at Trend Macrolytics, said: “Trump is holding the Fed accountable, and as the man who appoints Fed governors, that is entirely appropriate.” (CNBC)

That’s not exactly a rousing defense. In any case, remember Don Luskin is the guy who gave the “all clear” on September 14, 2008. 

In addition:

A 47% plurality of respondents believes the nominations along with the president’s critical remarks about the Fed are “reducing the central bank’s independence”

To remember why “Fed independence” is more than just a empty phrase, recall the time-inconsistency of non-inflationary monetary policy, excellently explained in this set of notes by Jeff Frankel (which I just taught to my students in macro class).

12 thoughts on “Don Luskin Speaks: On Trump’s Fed Nominees

  1. Moses Herzog

    Does anyone know where there’s a key for like “commonly used macroeconomics variables” for the Frankel link?? I know most of the more commonly used ones so I don’t need any know it all chirpers, just a link for more commonly used variables for monetary policy or macroeconomics variables. Thanks

  2. joseph

    Frankel: “How can the the Central Bank credibly commit to a low inflation monetary policy?”

    Bah, that’s the wrong question. The Fed has committed to fighting the last war from nearly half a century ago. In the meantime they have obediently catered to the selfish interest of the financial industry, creating untold misery on ordinary citizens. They have been wrong about inflation since the 1980s, always at the expense of full employment and wage gains by workers. The Fed has played a major role in the economic inequality of recent decades.

    Fed independence is an empty phrase as long as they are in the thrall of Wall Street bankers.

    1. Moses Herzog

      You’re showing a fundamental lack of understanding here—unless you are only referring to the Fed’s duty as regulatory enforcers—which I don’t think you are. The Fed have been absentee on their regulatory obligation with the small exception of Janet Yellen’s LAST day as Fed Chair.

      If anything, the Fed kept rates too low over Greenspan’s watch. It should be pointed out, that probably none of the Fed Chairmen or Governors wanted to use QE, the first QE or any renditions afterward. They are forced to do QE because Congress refuses to match revenues with budgetary expenses, and Congress also refuses to use Fiscal policy (as in spending on investment and infrastructure, not tax breaks for the upper 1% that have a non-existant multiplier effect).

      Blaming the Fed for financial/economic crises is like blaming an emergency room doctor for bad driving in an auto accident. They are doing surgery on a patient in critical condition because they have no other choice.

      1. pgl

        “If anything, the Fed kept rates too low over Greenspan’s watch.” Say what?

        Greenpan’s watched spanned 1987 to 2005. Interest rates were quite high for most of this period. Ask Bush41 if interest rates were too low when he was President. And of course we had that weird interest rate increase in 1994 which stalled the recovery. Yea – Greenspan later saw the light and helped bring interest rates down in line with the Clinton fiscal restraint. But they were not that low until the 2001 recession began.

        I would argue that the lowering of interest rates during Bush43’s first term was appropriate monetary policy. I get that Republican John Taylor started saying interest rates were too low for too long but only after he was told to bash Obama. He never made that claim when he worked for the Bush43 White House. And had he done so – I would argue he was dead wrong.

        1. Barkley Rosser


          Speaking of John Taylor, a very smart and knowledgeable guy who has been a candidate for Fed Chair in the past, he may be the only actually respectable economist to come out for Moore’s appointment, at least sort of, although I have not heard if he is also supporting Cain or not. The only reason I can see for him to be doing this is that he still wants to be on the Fed Board himself, and praising Trump’s pick might keep him on Trump’s list for any future appointments. It is pretty clear that one must kiss ass hard to get Trump to appoint one to anything now.

      2. pgl

        A graph of interest rates on long-term corporate bonds rated BBB by S&P:

        A challenge to Moses who claims Greenspan kept interest rates too low. Were they too low when Greenspan became the FED chair. Oh wait – they exceeded 10%. In fact this rate never fell below 6% during Greenspan’s entire term. Maybe that is because long-term government bond rates were 4.5% or higher for all of the Greenspan era. So I don’t get how anyone could say Greenspan kept interest rates too low.

        1. Moses Herzog

          @ pgl
          People of reasonable minds can disagree. For example I disagree that John Taylor is worthy of any respect. But I know a guy I DO respect, Alan Blinder, tends to agree with you that Greenspan’s decisions to keep rates low were generally correct.

          But I think the Federal funds target rate would be a better gauge than your Baa gauge (I would also love to know which of those two rate gauges is better in Menzie’s view, as far as judging Greenspan’s decisions). This old NYT article gives a pretty good synopsis:

          Low rates encourage risk-taking. That is an undeniable fact. Low rates encourage risk taking all across the national economy, including people attempting to buy cars and houses they cannot afford, and end up “underwater” on a car loan or a house mortgage. Then we can get into derivatives securities and on down the line….. If we look at the extended period of lowering of rates during Greenspan’s term, when more light tapping of the brakes (rate hikes) could have helped in avoiding the large 2007–2008 crisis, it’s pretty hard to deny low rates played a big part. Along with the somewhat differentiated issue of Greenspan taking even halfway seriously the Fed’s nearly mandated regulatory function, which they were absentee on during the Greenspan years.

          Looking at politics’ effects on things is prudent, but if you think criticizing a guy who left his post 2 years before President Obama took office is “bashing Obama”, then I think you’re trying just a little bit too hard there.

  3. Moses Herzog

    You know I was reading and thinking about fiscal policy and monetary policy and all that jazz. And I was wondering if economists have ANY idea what shape the real LM curve looks like?? Like currently or within the last 5 years?? Maybe this sounds like a ludicrous question but I was honestly wondering.

  4. pgl

    “Chief investment officer at Trend Macrolytics”. Resume padding. He is an information officer as he knows nothing about finance or economics. Now his web cite where he wrote the most incredibly stupid stuff in the history of time was called Poor and Stupid. His investment clients were Poor because Luskin is Stupid.

  5. pgl

    ‘“We have two open seats. The president has every right in the world to nominate people who share his economic philosophy,” National Economic Director Larry Kudlow said on CNN.’

    Leaving it to Kudlow to be even dumber than Luskin. Ah LARRY – WTF is Trump’s ‘economic philosophy’? I bet LARRY has no clue. Trump certainly does not!

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