The Federal Reserve shall continue in its same old vein now that Stephen Moore has relinquished his bid to be President Trump’s nominee to the Board of Governors. Let’s recount how off-base Moore’s major critics were in this episode.
The bid was to be one of these guys. Photographer: Andrew Harrer/Bloomberg photocredit: © 2019 Bloomberg Finance LP
The palm goes to Catherine Rampell of the Washington Post. When news of the Moore pick broke in March, she wrote about the “falsehoods” Moore had recently been putting forth about monetary policy. The big one was Moore’s identification, as she put it, of “a rule adopted by Paul Volcker in the early 1980s.” This rule never existed. Saying it did was “flat-out false.”
At issue was a contention Moore made in an op-ed that Volcker, as Fed chair in the 1980s, had adopted a “commodity price-rule” (Moore’s term), whereby tightening would follow increases in commodity prices and loosening would follow price drops. “I…honestly had no idea”—mark that one, “no idea”—”what he was talking about when I read this,” Rampell wrote in the Post. Researching the question, she “looked through”—her verb—Volcker’s autobiography and two biographies and came up empty. As for the “dozens of historical Fed meeting transcripts I read through in recent days,” they “made no mention of such a rule, either, or even the suggestion that changes in commodity prices were the primary driver of interest rates during Volcker’s tenure.” She called Volcker on the phone and got a goose egg from him.
Was that a keyword search, Control F, of those Fed meeting transcripts, Catherine Rampell? “Commodity” or “commodities” perhaps? If you read—distinguished perhaps from “read through”—the 1982 Federal Open Market Committee minutes, for example, you do not find these terms. You do, however, find an FOMC in tumult, with Volcker trying to lurch it in the direction of a price rule.
That price was the exchange rate of the dollar. In the latter half of 1982, Volcker made it repeatedly clear to his board that he could not countenance a dollar headed into the “wild blue yonder” (his words, October 5, 1982). A dollar going up, up, and up (meaning, by common association, commodities going down) was going to be his new reason for loosening. He had a whale of a struggle getting the inflation hawks on the FOMC, Bill Ford of the Atlanta Fed for example, on board.
These transcripts drip with drama and world-historical import, as Volcker tried to articulate a view that at long last the horrendous stagflation of the last 13 years was giving way to a new era of inflation-free growth. He could not be bound by old verities about interest rates and monetary quantities, those classical monetary-policy targets and warhorses of the 1970s. He wanted a price rule to guide his institution into the sunny uplands approaching the nation, after so long, and which perhaps only he at his institution was able to see at that momentous transition point in 1982. I wrote a paper about this last month, proprietary at Laffer Associates.
Rampell offered no alternative as to what Volcker’s policy was in the 1980s, once she dismissed Moore’s talk of a “rule” as a “falsehood.” Had she done any positive history (presumably the basis of her “no idea”), she would have had to identify a price rule.
Catherine Rampell and the Wapo are one thing. Journalism is a funhouse these days, unprofitable, bankrolled by philanthropists, and yellow like in the Citizen Kane days. It is apt to get in touch with its inner yearning to tell people—Beltway devotees in this case—what they want to hear when they are feeling flighty. Rampell may be a bogus historian, but she is playing to type.