The Two Big Questions President Trump’s Nominee For The Federal Reserve Must Be Asked

There are two big questions that President Trump’s nominee to fill a vacancy on the Federal Reserve Board of Governors, Stephen Miran, must be asked at his Senate confirmation hearing. If the answers are wrong, we could soon be headed for a round of bad economic news.

The board sets policy for our central bank, most notably the level of interest rates. Miran currently heads the president’s Council of Economic Advisers. He may well succeed Federal Reserve Chairman Jerome Powell when Powell’s term expires next year.

The two fundamental questions: How important does Miran think it is to have a dollar stable in value? And does Miran believe that prosperity causes inflation?

The definition of inflation is reducing the value of a currency, usually, but not always, by creating too much of it. This the Federal Reserve can directly affect by making a stable dollar the chief goal of monetary policy.

The Fed can’t control prices going up because of disturbances in production from natural disasters, wars and such government actions as costly regulations, pandemic lockdowns or higher taxes, like tariffs.

Unfortunately, our central bank can’t seem to distinguish between non-monetary inflation that emanates from events like floods or the imposition of sales taxes, and monetary inflation that comes from devaluing the dollar. Hence, we get the spectacle of current Fed boss Jerome Powell huffing and puffing about tariffs.

Incredibly, central bankers don’t grasp the basic importance of currency stability; they hardly ever mention the subject. Of course, they do understand—as does everyone else—the necessity of fixed weights and measures for efficient markets. The number of ounces in a pound doesn’t fluctuate, nor does the number of inches in a foot. Yet money performs the same function of measurement: It measures value. It’s a tool that facilitates commerce, the everyday buying and selling of countless items and services.

The idea of a fixed value for the dollar should be no more radical than having fixed measurements for weighing items or measuring distances. The best way to keep the dollar stable is to fix it to gold. For a variety of reasons the yellow metal keeps its intrinsic value better than anything else. It’s not perfect, but it’s been the best yardstick for thousands of years.

Since instituting a formal gold standard is taboo these days, the Fed could use an informal range and also refer to a basket of commodities, since commodities often quickly reflect changes in the value of the dollar.

This brings us to the second giant—and highly related—question: Does Miran think prosperity causes inflation? Real world experience shows the notion is preposterous, but it’s holy writ at the Fed and, indeed, at virtually every other central bank.

The Fed is prejudiced against vibrant growth. In fact, the very idea that in the name of fighting inflation the Federal Reserve should attempt to stimulate or depress economic activity needs to be attacked and, ultimately, abandoned. Where does Miran stand on this?

Miran may still hold his own strange notions about the dollar’s value. We must find out. Any policy other than a stable dollar is a recipe for trouble.