Newswires reported the White House is considering Larry Lindsey for Vice Chairman, and he is interested in the position.
According to CNBC, the Administration is seeking a monetary policy expert. Lindsey is a Ph.D. economist, was Fed Governor under Greenspan (1991-1997), and served under both Presidents H.W. Bush and George W. Bush. This is consistent with our expectation that the selection of Powell (not an economist) would prompt the nomination of a Ph.D. as Vice Chairman, and specifically to someone whose background, experience, and research positioned him or her to be a “monetary policy expert” as well. (The pending re-nomination of Marvin Goodfriend also follows this direction.) Like Goodfriend, Lindsey is a bit skeptical that quantitative easing programs deliver the benefits that the Fed has advertised: “We’ve piled up around the world this giant bonfire of liquidity in the form of central bank balance sheets.” Like most Republican nominees, he emphasized the importance of the price stability mandate. He has written extensively about the damage high inflation can impose on the real economy.
On balance, that suggests hawkishness. On the other hand, reviewing records of FOMC meetings when Lindsey was on the Federal Reserve Board matches my recollection that he was a very insightful, effective, and independently-minded member of the FOMC and that he was not decidedly hawkish or dovish. He made two dovish dissents and two hawkish dissents while on the FOMC. His vote depended on the circumstances. He dissented four times, which is a testimony to his independent thinking, and all the dissents were well reasoned. However, he would be unlikely to dissent if he were Vice-Chairman. More likely, any disagreements with Chairman Powell would be resolved before the FOMC meeting.
Still, what is most notable about Lindsay’s appointment is how in sync he is with President Trump’s fiscal agenda (or perhaps vice versa), and, in addition, how similar his response to those who disagree with his views. He has been outspoken recently on the consequences of the new tax bill, often in opposition to mainstream economic analysis.
Like Trump, he trashes those who disagree with him. Indeed, if you read what Lindsey has said about the CBO and the Joint Committee on Taxation (JCT) and didn’t know who said it, you surely would think it was Trump. He called the JCT “partisan” in its heir assessment of the effects of the tax bill, saying they saying the JCT was “playing games” to stop its legislative progress, called its assumptions “absurd,” and criticized the JCT’s methods as a “black box.” Some have suggested the Trump team doesn’t even have a black box. That makes me wonder whether Lindsey will trash the Board staff analysis of the tax legislation, and specifically that the Board staff does not assume the tax cuts will pay for themselves.
However, that is not the way Lindsey behaved at the Fed. Still, an “intervention” might be appropriate if he gets there. Undoubtedly, he will at least soften his tone and no longer speak so aggressively as a partisan and disparage the important independent economic policy institutions that report to Congress. He also wrote a book entitled “Conspiracies of the Ruling Class: How to Break Their Grip Forever,” so he, like Trump, is into conspiracies.
What’s most noteworthy, from the perspective of monetary policy, are his comments on the Fed’s response to fiscal stimulus. He called the JCT’s assumption that the Fed’s response would be “aggressive” as “absurd.” He elaborated: “If anything, the signals and market view have all been that the Fed will be less aggressive. Some members have even speculated about the advantage of raising the inflation target to allow a slower response…Markets have consistently priced in far fewer interest rate hikes than what the FOMC projects.” What is also remarkable here is his reference to a higher inflation objective, something he would have vigorously opposed as a member of the Board, but he appears to give a nod to because it would allow more room for fiscal stimulus to boost demand without the FOMC implementing a more restrictive policy than otherwise. These comments on monetary policy are frankly a bit scary and seem to reflect his highly partisan perspective.
It is important to appreciate that the Federal Reserve Act gives the president the authority to nominate Governors, Chairmen, and Vice-Chairman and that presidents look to find nominees that “share their values” (as I was told). Not surprisingly, Republicans tend to select Republicans and Democrats to elect Democrats to serve on the Board. This is not just to reward those who have supported them but to tilt monetary policy in the direction most preferred by one party or the other. And there is scope for political preferences to influence monetary policymakers’ positions on policy. They always have and they always will. Indeed, it is inevitable. In any case, when outsiders try to anticipate Lindsey’s monetary policy views, they will at least think about: “What would Trump want?” Nevertheless, I expect that, if Lindsey becomes Vice Chairman, it will be the more temperate, thoughtful, and collegial Larry Lindsey whom I served with on the Board. Let’s hope so.