Carlos Barria | Reuters
President Donald Trump speaks about administration plans to combat the nation’s opioid crisis in the East Room of the White House in Washington, October 26, 2017.
The list may be larger. It could still include Janet Yellen or Kevin Warsh. Trump is soliciting opinions and advice from people in 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 U.S. 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. Congress also has a constitutional prerogative to set the dollar’s value.
Years ago, during the 1990s, Democrat Robert Rubin was in charge of the Treasury, and he advocated a strong-dollar policy. And a couple of times, just in case markets didn’t believe him, he intervened to buy dollars to punctuate his policy.
But the Federal Reserve 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.