🚨 Trump Advisor Steve Miran Joins Fed
Today Korean Economic News for Beginners | 2025.08.17
0️⃣ Dollar Weakness and Easy Money Policy Signals, QE Restart Possible
📌 Trump's Closest Economic Advisor Named Fed Member, Major Policy Change Expected
💬 President Donald Trump announced he is nominating his closest economic advisor Stephen Miran as a Federal Reserve board member. Miran has consistently pushed for dollar weakness and manufacturing competitiveness recovery, signaling a shift from tight monetary policy to loose policy. Miran has argued that "a strong dollar is destroying American manufacturing" and wants deliberate dollar weakness policies. However, with America's huge national debt (122% of GDP), the Fed might need to restart quantitative easing to achieve both dollar weakness and stable bond rates at the same time. Financial markets are watching closely.
1️⃣ Easy Explanation
President Trump has sent a key person to the Fed to carry out his economic policies. This signals that America's financial policies could completely change, affecting economies worldwide including South Korea.
Let me explain who Steve Miran is. Miran has been a key figure in Trump's economic advisory team. He's an elite economist who studied at Harvard and Yale universities. But his economic philosophy is quite different from traditional Fed policies.
The Fed has traditionally focused on two main goals: 'price stability' and 'full employment.' When inflation is high, they raise interest rates to cool the economy. When the economy is bad, they lower rates to boost growth. But Miran argues they should add a third element: 'exchange rates.'
Miran's core logic is simple: "If the dollar is too strong, American products become expensive and hard to export, making US manufacturing lose competitiveness." For example, if a Samsung smartphone costs $500 and an iPhone costs $500, the stronger the dollar gets, the more expensive the iPhone seems in other countries. So Miran argues: "Let's deliberately weaken the dollar to make American products more price-competitive."
But there's a big problem here. To weaken the dollar, the US government needs to print more dollars, but America already has too much debt. National debt is 122% of GDP, so even a small interest rate increase causes debt payments to skyrocket.
That's where 'quantitative easing' comes in as a solution. The Fed would directly buy government bonds to prevent interest rate increases, while also flooding the market with money to weaken the dollar. This is the same method used during the 2008 financial crisis and 2020 COVID-19 pandemic.
Miran joining the Fed is seen as the starting signal for a new policy mix of 'dollar weakness + quantitative easing.'
2️⃣ Economic Terms
📕 Federal Reserve (Fed)
The Federal Reserve is America's central bank and has the biggest impact on global financial markets.
- It controls US interest rates, money supply, and financial system stability.
- It has 7 board members including the chair, appointed by the president for 14-year terms with Senate approval.
- Fed policy decisions directly affect dollar value and global liquidity.
📕 Dollar Weakness Policy
Dollar weakness policy deliberately lowers the dollar's value to boost export competitiveness.
- A weaker dollar makes American products relatively cheaper, increasing exports.
- But import prices rise, which can increase inflation pressure.
- The 1985 Plaza Accord is a famous example of exchange rate adjustment policy.
📕 Quantitative Easing (QE)
Quantitative easing is when the central bank buys large amounts of bonds and other assets to pump money into the economy.
- It's used when interest rates are near 0% and more economic stimulus is needed.
- It boosts the economy by raising asset prices and lowering currency value.
- Too much QE can create asset bubbles and inflation risks.
📕 National Debt to GDP Ratio
This ratio compares a country's debt level to its economic size.
- Over 100% means the country has more debt than its economy produces in a year, raising financial risks.
- The US is currently at 122%, which is high even among developed countries.
- When this ratio is high, rising interest rates can quickly increase debt payment burdens.
3️⃣ How It Works and Economic Outlook
✅ Historical Lessons from Exchange Rate Adjustments
Let's look at past successes and failures of exchange rate policies to predict Miran's direction.
First, the 1985 Plaza Accord is considered a major success story for exchange rate adjustment. At that time, America was struggling with growing trade deficits due to dollar strength. Working with Japan, Germany, Britain, and France to weaken the dollar, America's trade balance improved significantly. The trade deficit fell from $120 billion in 1985 to $28 billion in 1991. This is the success model Miran often mentions. But there were side effects too. Japan, hit by yen strength, responded with low interest rates but then suffered an economic bubble and long recession.
Second, today's situation is very different from the 1980s. In the 1980s, US national debt was around 40% of GDP, but now it's 122%. Back then, dollar weakness didn't create much fiscal burden, but now even small interest rate increases cause debt payments to surge. Also, manufacturing was 20% of GDP in the 1980s but is only 12% now. So dollar weakness might not boost exports as much as before.
Third, China's rise has made global trade structure much more complex. The 1980s had a three-way structure between the US, Japan, and Europe, but now China is the world's biggest exporter. Even if America weakens the dollar, if China responds by weakening the yuan, the effect could be limited. During Trump's first term, trade wars and currency conflicts happened at the same time.
Historical experience shows exchange rate adjustments can have short-term effects, but results depend on global economic structure and how other countries respond.
✅ Possibility and Impact of Restarting QE
Let's analyze the likelihood of America restarting quantitative easing and what changes it would bring.
First, America's current fiscal situation has the conditions that require quantitative easing. National debt has passed $35 trillion, with annual interest payments approaching $1 trillion. If 10-year Treasury rates rise from the current 4.3% to 6%, the government's interest burden could increase by $60 billion per year. That's equivalent to 10% of the defense budget. So the government desperately needs to keep rates low. If Miran joins the Fed, he'll likely pursue policies to ease this fiscal pressure.
Second, quantitative easing is a powerful tool to achieve both dollar weakness and rate stability. When the Fed buys large amounts of bonds, two things happen. One is falling rates that reduce government interest burden. The other is increased dollar supply that weakens the dollar. During COVID-19 in 2020, the Fed's $3 trillion QE caused the dollar index to fall over 30%. It's the most effective tool for achieving Miran's policy goals.
Third, but QE side effects would also be significant. The biggest worry is inflation returning. After 2020-2021 QE, US inflation shot up to 9%. Asset price bubbles are also concerning. Rapid increases in stocks, real estate, and crypto prices could worsen income inequality. Internationally, massive capital flows to emerging markets could create asset bubbles and currency instability in those countries.
Restarting QE might help Trump achieve his policy goals short-term, but could create new economic imbalances long-term.
✅ Impact on Korean Economy and Response Plans
Let's examine how US monetary policy changes would specifically affect Korea's economy and financial markets.
First, dollar weakness would strengthen the won and hurt Korea's export competitiveness. The current dollar-won rate is around 1,380 won, but dollar weakness could push it to the 1,300s or lower. A stronger won would hurt the price competitiveness of exporters like Samsung Electronics and Hyundai Motors. This would especially impact semiconductors competing with China and Taiwan, and cars competing with China. However, raw material import costs would fall, easing inflation pressure.
Second, US quantitative easing would increase capital flows to Korea and raise asset prices. When US rates fall, foreign money would seek higher returns in Korea. Foreign funds would likely pour into Korean stock and bond markets. This would boost stock prices and strengthen the won short-term, but could cause big shocks when money suddenly leaves, making volatility management important.
Third, the Bank of Korea's monetary policy would face constraints. If America cuts rates sharply and restarts QE, Korea would face pressure to cut rates too to prevent capital outflows. But Korea still has serious household debt problems, making it difficult to cut rates too much. In this dilemma, using macroprudential policies (stricter lending rules) to minimize side effects becomes important. Preparing for foreign exchange market intervention against rapid rate changes would also be necessary.
US policy changes would bring both opportunities and risks to Korea's economy, requiring proactive and flexible response strategies.
4️⃣ In Conclusion
Steve Miran joining the Fed signals a fundamental change in US monetary policy. His 'dollar weakness + quantitative easing' policy mix might help Trump achieve manufacturing competitiveness goals short-term, but risks creating new global economic imbalances long-term.
The most notable point is America's structural constraints. High national debt at 122% of GDP has become a serious obstacle to traditional monetary policy operations. Raising rates increases government interest burden sharply, while cutting rates raises inflation and asset bubble risks. Miran's policies seem to be an attempt to solve this dilemma through quantitative easing.
But the effectiveness of such policies is uncertain. The global economic structure has become too complex to recreate the 1980s Plaza Accord success, and manufacturing's share of the US economy has shrunk significantly. Most importantly, China is a wild card. Even if America weakens the dollar, if China responds by weakening the yuan, effects could be limited.
Korea would face mixed impacts. Won strength hurting export competitiveness is a burden, but increased capital inflows and cheaper raw material imports are positive factors. The key is proactive responses to rapid changes.
The Bank of Korea especially needs to review policy tools for rapid exchange rate changes and capital flow shifts. Securing foreign exchange market intervention capacity, strengthening macroprudential policies, and building international cooperation systems will be necessary.
Financial market participants also need to adapt to the new environment. If dollar weakness and quantitative easing become reality, fundamental reviews of asset allocation strategies will be needed. While risk assets might benefit short-term, inflation risks and policy change possibilities must always be considered.
Ultimately, Miran joining the Fed signals the start of a new monetary policy experiment. Whether this experiment succeeds or becomes the seed of a new crisis remains to be seen, but what's clear is that global financial market rules could change significantly.
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