The economist pointed out that both Moore and Cain seem to have changed their prior hawkish views to fit with the Trump administration’s call for easier Fed policy. Trump has repeatedly criticized the Fed’s interest rate increases and has said the Fed should now cut rates and be more accommodative. The Fed has backed off its forecast for more rate hikes, but officials have not embraced the idea of rate cuts.
“In terms of quantitative tightening, it should absolutely now be quantitative easing,” Trump told reporters on Friday.
Gapen said it’s not unusual for presidents to advocate a certain policy, but what is unusual is for potential nominees to voice policy views in line with the White House ahead of their appointments.
White House top economic advisor Larry Kudlow described Cain and Moore as being capable and said they could serve to counter other views on the Fed board.
“Cain said he fears deflation more than inflation, and Moore has advocated for a 50 [basis point] reduction in the target rate for the federal funds rate,” Gapen said, noting that their “easy money” policies contrast with their previous “hard money” views.
“The market could look toward what they said in the past and what they’re saying now, and argue their policy reaction function could look more political than economic,” said Gapen.
He added that Moore had been an economic advisor to Cain’s presidential campaign and helped create Cain’s tax plan, which called for a return to the gold standard. Cain was a Republican candidate for president in 2012.
“He was a regular critic of the Fed’s unconventional policy easing and, as recently as 2014, advocated for a reversal of QE through $45bn in monthly sales of Treasury securities and MBS holdings that would have reduced the Fed’s securities holdings by 75% through 2020,” Gapen wrote in a note.
“Moore’s criticism of Fed balance sheet policy was driven, in part, by concerns over currency debasement,” Gapen said. “Shifting to a gold standard would eliminate exactly the kind of discretionary policy action both are recommending now.”
Gapen said the two nominees do have some relevant experience. Cain, a former pizza restaurant executive, was a chairman and deputy chairman at both the Omaha branch of the Federal Reserve Bank of Kansas City and the Federal Reserve Bank of Kansas City.
Moore has a master of arts in economics from George Mason University. He also served as a fellow at the Cato Institute, the Club for Growth, and the Heritage Foundation and was formerly on The Wall Street Journal editorial board.