The Idea That the Fed Is ‘Independent’ Is Absurd

President Donald Trump sparked controversy — as is his wont — when he recently told CNBC that he was “not thrilled” with the Federal Reserve’s announced hikes in short-term interest rates, which he claimed would hinder the economic expansion for which his administration had worked so hard. “I’m letting them [the Fed] do what they feel is best,” he added, but this assurance was not enough to prevent journalists and policy experts from pronouncing Trump’s remarks as unprecedented interference with the central bank’s independence.

It may be unusual for a president to openly voice such criticism, but it wouldn’t be the first time one has pressured the Federal Reserve for short-term political gain. In 1965, President Lyndon Johnson considered firing then-Fed Chairman William McChesney Martin, but upon learning this would probably be illegal, he opted instead to dress down the recalcitrant central bank chief at his Texas ranch. By Martin’s later account, a heated argument erupted that resulted in the president shoving him against a wall. According to financial journalist Sebastian Mallaby, as LBJ pushed Martin around the room, he yelled, “Boys are dying in Vietnam, and Bill Martin doesn’t care.”

Better known is President Richard Nixon’s tape-recorded collaboration with Fed Chairman Arthur Burns, Martin’s replacement, who maintained an easy-money policy to stimulate the economy before the 1972 election, which contributed to Tricky Dick’s landslide victory and fueled price inflation for the rest of the decade. In terms of the resulting capital destruction and economic dislocations, this episode is one of modern U.S. history’s greatest object lessons about the risks of executive power reaching beyond its constitutional authority.

For another example showing that Trump’s behavior is nothing new, consider that President George H. W. Bush had a running public dispute with then-Fed Chair Alan Greenspan over monetary accommodation. Bush would later blame “The Maestro” for his 1992 reelection loss.

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