The Wall Street Journal reports that President Trump met with Stanford University’s John Taylor on Wednesday to possibly be the next chair of the Federal Reserve. Before this news became public, expectations were beginning to grow that former Fed Governor Kevin Warsh was the early favorite.
This is great news, and I’ve been waiting patiently for something nice to write about the Trump administration. Such an appointment would be the monetary policy equivalent of appointing Neil Gorsuch to the Supreme Court.
Taylor developed a simple yet elegant mathematical definition of the Fed’s dual mandate to maximize employment under the constraint of maintaining price stability. Known as the Taylor Rule, this metric has increasingly become the yardstick by which the sometimes arbitrary decisions of the Federal Open Market Committee have been made when setting interest rates.
In essence, it’s the responsiveness of inflation and output to the nominal interest rate. More importantly, this is what interest rates should be if the Fed wasn’t winging it. That’s ultimately what I hope Trump can accomplish with this appointment: steering the Federal Reserve away from the arbitrary decision making it has descended to in the past decade. For a transition to a more rules-based monetary policy, John Taylor, the father of the Taylor Rule is the best man for the job.
Eric Shierman lives in Salem and is the author of A Brief History of Political Cultural Change.