President Trump has had (what else?) a publicly tempestuous relationship with the Federal Reserve System.
Fed Chairman Jerome Powell has adhered to the Fed’s official traditional position of being apolitical. Typical of Powell’s statements is the unequivocal assertion that “[p]olitical considerations play no role whatsoever in our discussions or decisions about monetary policy.”
Then again, the Fed has been a problematical institution from the start, and the notion that the Fed has always been an apolitical institution is a myth.
Chairman Arthur Burns (1970-78) accommodated President Nixon’s “guns and butter” spending splurge.
Chairman Ben Bernanke (2006-14) adopted a long-term zero- interest rate policy that deprived the American middle class of the ability to earn a traditional modest rate of interest in safe bank accounts while enabling the Obama administration to rapidly increase the national debt by suppressing the cost of such extravagance.
Chairwoman Janet Yellen (2014-18) maintained the zero-interest rate policy as well as Bernanke’s 2% inflation target — that is, until the political winds shifted and Trump became president. It is hard to think of a more unfair Fed policy than depriving middle-class Americans of returns on their savings while simultaneously trying to reduce their purchasing power by 2% per year.
The policies of the Federal Reserve have seemed to accommodate the policies of whoever occupied the White House, even when those policies (especially non-stimulating “stimulus plans”) were economically counterproductive.
Just over two centuries ago, Thomas Jefferson wrote to John Taylor “that banking establishments are more dangerous than standing armies.” Indeed, Dudley’s thinking-out-loud episode validates Jefferson’s concerns. If Dudley is willing to share such ominous machinations with the public, I wonder what the current leaders of the Fed are talking about behind closed doors.
Mark Hendrickson is a retired adjunct faculty member, economist and fellow for economic and social policy with the Institute for Faith and Freedom at Grove City College.
