Like the’ 20s of the 21st century, the ‘ 70s of the 20th century had an prices issue. The issue persisted throughout the century, however, it worsened. That was largely due to the fact that the Federal Reserve Board head initially let himself be pushed around by the US leader.
Yesterday’s Fed seat is determined not to let that happen again. He will need all the political will and bravery he may conjure to avoid it.
Fed chair Arthur Burns was telling President Richard Nixon that lowering interest rates in an inflationary business was a blunder for the majority of 1971. For a logical, if possibly mistaken, political purpose, Dixon persisted.
For the US in the 1970s had an awkwardly large 6 % poverty level, in addition to inflation. In order for Burns to loosen monetary policy in the lead up to 1972, he felt that poverty was a greater threat to his candidacy than inflation. When Nixon suddenly threatened policy to reduce the Fed’s freedom, Burns folded.
Now the Fed’s liberation is back in the sights. Not much after appointing him in 2018, President Donald Trump began to lose patience with Fed Chair Jerome Powell. The following morning, he blasted him once more.
The president declared he would require lower interest rates during a virtual conference of the new Davos forum. He claimed that the leader should be in charge of interest rates in a campaign appearance next month. Some of his officials made plans earlier this year to increase the power of the Fed to the executive branch.
Every leader wants low interest rates, as I pointed out in a blog about those ideas last May. Fearing financial-market opposition, but, most seethe in silence when the Fed doesn’t provide them what they want. Some, Nixon most notably, try to force the Fed.
Trump is in Nixon’s station.
The issue with this is that there are instances when high interest rates provide the terrible treatment the economy requires. Without them, cpi you spin out of control, as it did in the ‘ 70s. Long-term inflation may wreck an economy.
While high interest rates don’t get public favour, neither does prices, which likely cost the Liberals the next election. But the sick effects of inflation may be felt on some other voter’s view, the politician hopes. High interest rates and the economic downturn, in the politician’s opinion, could prevent winning the upcoming election.
And that’s why Congress established a relatively independent Federal Reserve Board by taking interest-rate selections out of the control of officials. If you have a 14-year name as a Fed government or are leader of a local Federal Reserve bank, it’s easier to make the controversial decision to raise rates.
Independence doesn’t ensure errors won’t be made. It only increases the likelihood that, if they are made, they will be economical judgmental mistakes rather than attempts to win voters ‘ pursuit.
The Fed’s democracy isn’t complete. Legislation was reverse it if Congress passes it. The Senate approves the rulers, and the leader appoints them. The Fed head frequently answers questions and testifies before parliamentary commissions.
However, the governors do have a good deal of freedom because they are elected just for a reason and have longer terms. Recent Fed chair Powell wants to keep things that way, just like he would any other Fed official. In his six years as head, Powell has demonstrated political astuteness in dealing with Congress.
Doing the same with this leader may prove more difficult.
The seven rulers and five Federal Reserve Bank presidents who are members of the rate-setting Federal Open Market Committee held a meeting in January, but they didn’t give the president what he claimed he would require. The FOMC voted this time to keep costs intact after dropping their standard interest rate by a full percentage point since last September.
At his post-meeting press conference, Powell said the Fed wants to see more progress in reducing inflation toward the Fed’s 2 % purpose before cutting again. To queries about the government’s remark that he would require lower prices, Powell gave uncombative answers.
” The president’s statement will not cause me to respond or post in any way.” It’s not suitable for me to accomplish so”, Powell said. The people should be assured that we will continue to do our jobs as we have always, using our resources to achieve our objectives, including steady prices and highest employment.
He stated that the Fed may continue to use financial data to inform its decisions. ” Don’t seem for us to do anything more”.
Did Powell succeed in keeping his head down? That’s up for debate. It’s a good start, nevertheless.
President Trump has shown he is vulnerable to market responses. He may want to keep in mind that the financial industry will be very damaging if a pending Fed rate split is perceived as caving to his needs. An impartial Fed is desired by the industry.
Urban Lehner, a former long-time Asia journalist and director for the Wall Street Journal, is now editor professor of DTN/The Progressive Farmer.  ,
This , content, originally published on February 4 by the latter media business and then republished by Asia Times with authority, is © Copyright 2025 DTN/The Progressive Farmer. All rights reserved.  , Follow , Urban Lehner , on Twitter: @urbanize