President Trump needs a stable dollar along with tax cuts to maximize growth
President Trump is likely to name a new Federal Reserve chair over the next few days. Speculation is focused on current Fed governor Jay Powell and Stanford University economist John Taylor. The list may be larger; it could still include current Chair Janet Yellen or Kevin Warsh. Trump is soliciting opinions and advice from people inside and outside government. We will see soon enough.
Unfortunately, so much of the conversation about a new Fed leader is focused on who will be the high-interest-rate hawk or the low-interest-rate dove. But that's not really the way we should be looking at it.
Here's a point no one has discussed: the fate of the dollar.
Now, strictly speaking, dollar policy is the purview of the Treasury Department, which has the authority to intervene in exchange markets to buy or sell dollars. By the way, Congress also has a constitutional prerogative to set dollar value.
During the 1990s, Democrat Robert Rubin was secretary of the Treasury, and he advocated a strong-dollar policy. Just in case markets didn't believe him, he intervened a couple of times, buying dollars to punctuate his policy.
But the Fed and its money-creating balance-sheet policies must work with the Treasury to execute dollar policies. In the long run, Treasury interventions don't really have any clout. It's the Fed that really counts.
And yet, we don't really know what dollar policies the Fed candidates favor.
So far as I know, Yellen hardly ever mentions the dollar. Nor does Powell, at least not in his very few public speeches.
While President Trump sometimes publicly favors a steady dollar, he sometimes warns that he does not want a particularly strong greenback.
But I think the best policy is a steady, sound, reliable King Dollar.