How independent are Fed officials from the politicians who appoint them?
How independent are Fed officials from the politicians who appoint them?
So the long-awaited — or long-dreaded, depending on your perspective — rematch between former President Donald Trump and President Joe Biden is all but official now.
One of the many differences between the candidates is how they talk about the Federal Reserve.
Biden has for the most part shied away from publicly criticizing Fed Chair Jay Powell. When he was in office, Trump tweeted about the Fed hundreds of times, at one point asking whether Powell was a bigger enemy than Chinese President Xi Jinping — remember that?
Political independence of the Fed is an important and delicate thing.
Don Kohn worked at the Fed for over 40 years. He said that Fed officials really didn’t bring politics to the office, except for that one guy with the Obama bumper sticker on his car.
While Fed governors are appointed by the president and approved by the Senate, they serve 14-year terms and basically have to have a major scandal to get forced out.
Congress set it up this way partly because its members didn’t trust themselves to run monetary policy.
“Politicians are worried about the next election,” Kohn said. “So they’re going to push the economy forward in advance of that election,” rather than doing what’s good for the economy in the long term.
That being said, politicians have tried to influence the Fed.
Trump wasn’t the first president to publicly attack a Fed chair, said Peter Conti-Brown at the University of Pennsylvania’s Wharton School.
“George H.W. Bush didn’t have a Twitter account, but he did have a press conference, and he even called out, sort of a clap back to Alan Greenspan in his State of the Union, where he said interest rates are far too high,” he said.
Greenspan was unmoved.
But Sarah Binder at George Washington University said it’s a mistake to think the Fed is completely immune from politics, especially when Congress can audit the central bank or saddle it with more responsibilities.
“The Fed needs to make sure that they keep Congress on it’s side, even though the Fed has to make these pretty tough decisions,” she said.
That may be why Jay Powell answers all those questions from Congress pretty politely, even if the questions themselves can be pretty impolite.
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