Stockman Calls for 'House Cleaning' at the Federal Reserve

David Stockman, author of the book "Trumped" and former Office of Management and Budget director, said the Federal Reserve has taken over the financial system and a full house cleaning of its officials are in order.

In an interview on the FOX Business Network’s Wall Street Week, Stockman explained that after the Fed’s decision on Wednesday to keep short-term interest rates on hold, the central bank has lost all credibility.

“After 93 months essentially on the zero bound, [the decision[ was cowardly, clueless, and catastrophic,” he said. “The only thing this can do is inflate this hideous bubble we already have in the world financial system even more, and make the ultimate resolution or crash all the more traumatic.”

In order to resolve what he sees as problematic monetary policy, Stockman recommended a changing of the guards at the Fed. He said while he agrees there is slack in the labor market – a factor Fed Chief Janet Yellen said was behind the September policy decision – his reasoning for why it exists is different from the view held by the Fed.

“It’s due to technology, it’s due to social policies, transfer payments, regulations, taxes, competition with cheap labor all around the world,” Stockman explained. “It’s not monetary policy. She shouldn’t even be talking about it.”

In addition to labor-market slack, the Fed is also concerned about inflation levels continuing to run below target. Core personal consumption expenditures, the central banks’ preferred inflation gauge, currently sits at 1.6%, below its 2% objective. But Stockman disagreed with the Fed’s assessment of inflation and its current impact on the economy.

“CPI [consumer price inflation] excluding food and energy is up 2.3% in the last year. The difference is global oil has collapsed and commodities have collapsed. The Fed can do nothing about that. It’s actually a good thing on the margin because we import more oil than we produce. Beyond that, the wage earners in America are being killed by inflation targeting by the fact the cost of living is going up faster than their wages,” he said.

Stockman’s full interview is scheduled to air Friday evening at 8:00 p.m. ET.