for the duration of his presidency, the
effective zero boundary precluded action
other than a return to higher rates. In
short, there was nothing to say: the only
way for rates to move was “up.”
Expect More of the Same
The entire exercise of introducing evi-
dence that the Fed isn’t politically inde-
pendent is moot from the start, though.
For despite what numerous media out-
lets have taken the President to task for,
the Q&A section of the Richmond Fed
website asserts that, in fact, “the Federal
Reserve can be more accurately described
as ‘independent within the government’
rather than ‘independent of government.’”
The Fed is independent within the gov-
ernment, in part, because it is self-financed
and does not depend on Congressional
appropriations or Presidential recommen-
dations for its funding. By the same token,
neither the President or Congress can
bully the Fed by cutting its budget. That’s
not the case with most other federal regu-
latory agencies, or even the IRS.
Consider what incontestable political
independence would actually require: at
the very least, every one of the Fed’s polit-
ical ties—appointments, testimony, the
ability to expand or reduce their mandate,
etc.—would have to be severed. To inocu-
late them from indirect political pressure,
the identity of Fed officials would have to
be essentially secret.
As currently structured, and consider-
ing both the raft of directives that it labors
under and the unique attributes of mon-
etary policy, it is cogent to expect elected
officials to attempt to sway Fed actions.
It was going on for decades before the
current President took office and, barring
changes, will continue to do so. That any
institution exercising as tremendous a
mandate as managing the money supply
of the world’s largest economy (and the
world’s reserve currency, to boot) would
go unheeded in the corridors of political
power is unrealistic at best.
In that sense, the Federal Reserve is
something of an embodiment of the
Hayekian adage: a reminder that, at times,
economics is a constant lesson in letting
people know what they cannot design.
Peter C. Earle is a Research Fellow at
the American Institute for Economic
Research. He spent two decades as a
trader and now focuses on financial mar-
kets, monetary policy and currencies.
Sources
Abrams, Burton A. “How Richard Nixon Pres-
sured Arthur Burns: Evidence From the
Nixon Tapes.” See: https://pubs.aeaweb.org/
doi/pdfplus/10.1257/jep.20.4.177
Federal Reserve Bank of Richmond. “How is
the Federal Reserve System Structured?”
See: https://www.richmondfed.org/faqs/frs
Federal Reserve History. “Full Employ-
ment and Balanced Growth Act of 1978
(Humphrey-Hawkins).” See: https://www
.federalreservehistory.org/essays/
humphrey_hawkins_act
Greenhouse, Steven. “Bush Calls on Fed for
Another Drop in Interest Rates.” The New
York Times. June 24, 1992.
Lyndon B. Johnson, State of the Union
Address. January 10, 1967. See: https://www
.infoplease.com/primary-sources/govern-
ment/presidential-speeches/state-union-
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archive.org/stream/4731750.1970.001.umich
.edu/4731750.1970.001.umich.edu_djvu.txt
Tankersley, Jim. “Trump Takes a Rare Presi-
dential Swipe at the Fed.” The New York
Times. July 19, 2018.
The American Presidency Project. Ronald Rea-
gan, “Address before a Joint Session of the
Congress on the Program for Economic
Recovery.” February 18, 1981. See: https://
www.presidency.ucsb.edu/documents/
address-before-joint-session-the-congress-
the-program-for-economic-recovery-0
Berry, John M. “The Fed Chief’s Unlikely Alli-
ance.” Washington Post. March 21, 1993.
Bernanke, Ben S. “Central Bank Independence,
Transparency, and Accountability.” May 25,
2010. See: https://www.federalreserve.gov/
newsevents/speech/bernanke20100525a.htm
Editorial Board. “Trump Violated Another
Presidential Norm. Now the Fed is in a
Tight Spot.” Washington Post. July 21, 2018.
Employment Act of 1945, Wikipedia.
See:
https://en.wikipedia.org/wiki/
Employment_Act_of_1946
Left: President Richard Nixon confers with his
monetary advisors at the White House. From left
to right: John D. Erlichman, Domestic Council;
Arthur Burns, soon to become Chairman of the
Federal Reserve; President Nixon; and Budget
Director Robert P. Mayo. (Credit: Bettmann)
Right: Federal Reserve Chairman Alan Greenspan
speaks to the media in the Oval Office of the
White House beside President Bill Clinton,
January 4, 2000. (Credit: Mario Tama)
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