Threatening foreign bondholders with a backdoor Treasury default? Engineering policy towards mass depreciation or devaluation of the currency? Enabling mass Presidential firing of every central bank official at will? Such measures sound familiar to those who followed Argentina under the Kirchner regime of the 2000s and 2010s, or else the more recent antics in Turkey. Perhaps to the surprise of the Senate Banking Committee, these are also views recently expressed by Stephen Miran, the current Chair of the Council of Economic Advisers who is being considered for the Federal Reserve Board of Governors. 

Institutional erosion rarely serves the goals of a stable currency, stable prices, or stable interest rates. As basket-case examples like Argentina illustrate, the costs of such erosion are made visible “first very slowly, then all at once.” Even if what transpires is merely a mild erosion of Fed independence, moving in that direction is fraught with deeper risks.

Whatever decision the Senate Banking Committee chooses to take on the nomination of Miran to the Fed, it should be a fully informed one. The hasty confirmation hearing for Miran aired some key issues, but hardly all of them, and not the most important ones. Given that a Federal Reserve Governor can serve beyond the expiry of his term, it would be unwise to make an exception for seemingly “short-term” appointments; short-term appointments can last longer than initially anticipated. 

There were three key issues the Senate did not address in Miran’s confirmation hearing:

1. As recently as November 2024, Miran proposed technical default on U.S. government debt as a viable negotiation and policy mechanism for fulfilling the President’s trade & manufacturing goals.

Shortly after the November 2024 election, Miran released “A User’s Guide to Restructuring the Global Trading System.” In “A User’s Guide,” Miran outlines a number of policy options to address what he describes as “persistent dollar overvaluation” that leads to “economic imbalances” burdening the U.S. manufacturing sector. The key culprit behind these outcomes, in his view: excessive foreign demand for U.S. government debt.

According to Miran, foreign entities are accumulating uneconomically high levels of Treasury securities, bidding up the value of the dollar “excessively”, and burdening the U.S. manufacturing sector. The Senate should have deep concerns about how the Fed and the Treasury would act on such reasoning, starting with Miran’s own proposal: for the Treasury to unilaterally "impose a user fee on foreign official holders of Treasury securities, for instance withholding a portion of interest payments on those holdings."

This, in plain terms, is a proposal to default on the national debt. What makes this proposal more concerning is the deliberate thought behind it. Just because Miran describes it as a "user fee" does not change the fact that he would have the U.S. renege on its commitment as a borrower. If you borrow money and then, before repayment, charge the lender a “user fee” for the privilege of lending to you, that is an attempted expropriation of obligated interest income and obvious default under basic contract law. Miran describes his scheme as a “user fee” because, as he fully admits, if it were called a tax, it would run afoul of both tax treaties and constitutional processes. Of course, the Supreme Court looks at the substance of policies, not just their name. Whether it is called a tax or a user fee, it is ultimately default.

Miran has since distanced himself from “A User’s Guide,” which he said was “not policy advocacy,” but the fact that he seriously entertained the idea of defaulting on the debt raises serious concerns about his judgment. The Fed plays a pivotal role in fostering the stability and strength of Treasury markets, which remain a backbone of the US and global financial system. It should go without saying that intentionally defaulting on the U.S. debt would be disastrous. It is no hyperbole to say that the expropriation of foreign bondholders’ interest income, in a selective manner decided by the executive branch, would stoke financial and currency crisis dynamics if enacted. Miran’s “user fee” proposal reflects reckless judgment, and even if intended to serve as a mere trade negotiation threat, it is a suicidal one.

2. As recently as November 2024, Miran endorsed a “weak dollar policy”–by a questionable set of means–as central to fulfilling the President’s trade and manufacturing goals.

The key underlying premise of “A User’s Guide”—that the strong dollar is responsible for deindustrialization, and that an aggressive weakening of the dollar can revive manufacturing—is an empirically dubious proposition. Between 2002Q1 and 2008Q2, the dollar lost about a quarter of its value relative to a trade-weighted basket of currencies. In that period, the goods trade deficit grew from -3.3% to -4.9% of GDP, and the manufacturing sector lost nearly 2 million jobs. Even four years later, after the dollar lost so much of its value, manufacturing employment had only fallen further, while trade balance outcomes barely budged. Even if we ignore the costs of a weak dollar policy, any supposed benefits for domestic manufacturing are evidently swamped by other factors most of the time.

The costs of material weakening the dollar are not trivial, and certainly not at a time when Americans remain frustrated by a period of high inflation and rising cost of living. A weaker dollar makes imports more expensive, driving up the cost of energy, food, and metals. Again, the 2000s are informative: while the dollar slid, import prices for commodities rose, and commodity prices went through a supercycle that pushed major commodity prices to still-unmatched levels. A weaker dollar may close the trade deficit, but it is more likely to flow through lower imports, not stronger exports. Meanwhile, households would face higher prices for basic consumption necessities, and businesses face higher material and energy input costs.

Above all else, the dollar is at the center of the global trading and financial system, a powerful fact that extends beyond the description of “the world’s reserve currency.” Financial stability, national security, and global security depend on a stable dollar, one that is not treated as a political instrument to be aggressively weakened. 

Why is this relevant for Miran’s consideration for a position on the Board of Governors? The CEA Chair seems highly informed in how the Fed’s range of authorities, tools, and capabilities could be leveraged to support a Presidential effort to achieve a weak dollar policy. His proposals in “A User’s Guide” explicitly suggest enlisting the Fed in this scheme by offering it "guarantees of its independence" in exchange for the Fed's cooperation. Of course, this would be a conditional endorsement that compromises and contradicts the very notion of independence. 

3. As recently as March 2024, Miran endorsed giving the President the ability to remove every Federal Open Market Committee member at-will, with no new check or balance from Congress.

At Miran’s confirmation hearing last week, some Senators rightfully bristled at the fact that he recently proposed subjecting Federal Reserve Governors to at-will removal by the U.S. President. Miran countered that it was unfair to call him out on his proposal, telling Senator Warnock, “I did not recommend giving the President control over the Fed, because what I recommended doing was a package of checks and balances.”

Miran’s proposal that Fed Governors should be subject to at-will removal by the President received ample attention, but that’s just the tip of the iceberg of his proposals to subject the Fed to executive control. Ironically, the full package of proposals is even more alarming. Although he suggests that elevating all regional bank executives to permanent voting status on the FOMC balances increased presidential control over the Board, "A User's Guide" suggests that those regional bank executives should also be subject to at-will removal by the President. In short, his proposal as a whole would allow the President to fire the entire FOMC.

Miran’s package of proposals also seeks to subject the Federal Reserve staff to the internal hiring policies of the President. Unless the FOMC is entirely led by appointees of the sitting President and Fed independence is a fiction, the ability to fire all staff of a multimember-led body for singular political reasons would make little sense.

The aggrandizement of Presidential power and the draining of credible congressional accountability are the obvious upshots of the CEA Chair’s stated vision for the Fed. Whatever new checks and balances in Miran’s package, such as the involvement of state Governors in the selection of regional Reserve Bank Presidents, there is no new check or balance for Congress. The CEA Chair’s vision for the Fed is simply not credibly aligned with keeping the Fed independent from the executive, and accountable to Congress.

Concluding Thoughts

Stephen Miran would only be one member of the FOMC and is currently being considered to finish out the few months of former Governor Kugler's term. But as we mentioned earlier, he can serve beyond the term’s expiry, and the Senate should treat all confirmation processes with full seriousness. 

The CEA Chair has engaged in some curiously unexplained about-faces in just the last year on matters of monetary policy, tariff impacts, and inflation. The risk is that these about-faces reflect rank partisanship, and can be contrasted with more consistent and principled views from some of President Trump’s other appointees. Normally, such issues would be worth occupying the bulk of the Senate’s attention and vetting processes. Unfortunately, bandwidth for vetting appears to be limited. Whatever specific differences on the analysis of monetary policy decisions and inflation dynamics, they pale in comparison to the stakes of the discussed views, all of which the CEA Chair expressed quite transparently and recently. 

The Fed’s role in keeping prices, the dollar, and Treasury markets on a strong and stable footing should not be underestimated. Elevating someone with these ideas to the Board of Governors can have serious ramifications; lost trust in the institution can lead to higher long-term rates and financial volatility. No matter what decision the Senate Banking Committee and the Senate make, these concerns should be aired and, ideally, addressed with credible responses.

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