Just like the ’20s of the twenty first century, the ’70s of the twentieth century had an inflation downside. The issue endured all through the last decade; certainly, it worsened. That was in important half as a result of early within the decade the Federal Reserve Board chair let himself be pushed round by the US president.
Right this moment’s Fed chair is decided to not let that occur once more. Avoiding it can require all of the political ability and braveness he can muster.
By means of a lot of 1971, Fed chair Arthur Burns was telling President Richard Nixon that decreasing rates of interest in an inflationary economic system was a mistake. Nixon endured for an comprehensible although maybe mistaken political purpose.
For along with inflation the US within the ’70s had an uncomfortably excessive 6% unemployment fee. Nixon was pushing Burns to loosen financial coverage as a result of, anticipating 1972, he judged unemployment a higher hazard to his reelection than inflation. When Nixon lastly threatened laws to trim the Fed’s independence, Burns folded.
Right this moment the Fed’s independence is again within the crosshairs. President Donald Trump misplaced endurance with Fed Chair Jerome Powell not lengthy after appointing him in 2018. He blasted him once more the opposite day.

Throughout a digital session of the latest Davos discussion board, the president mentioned he would demand decrease rates of interest. In a marketing campaign look final 12 months, he mentioned the president ought to have a say on rates of interest. Earlier final 12 months a few of his advisors ready plans to place the Fed extra below the chief department’s management.
As I famous in a post about those plans final Might, each president desires low rates of interest. Fearing financial-market pushback, nevertheless, most seethe in silence when the Fed doesn’t give them what they need. Others, Nixon most famously, attempt to strain the Fed.
Trump is in Nixon’s camp.
The issue with that is that there are occasions when excessive rates of interest are the painful drugs the economic system wants. With out them, inflation can spin uncontrolled, because it did within the ’70s. Extended inflation can wreak havoc on an economic system.
Whereas excessive rates of interest don’t win public favor, neither does inflation, which most likely value the Democrats the final election. However the ailing results of inflation may be felt on another politician’s watch, the politician hopes. To the politician, excessive rates of interest and the financial slowdown they bring about threat shedding the subsequent election.
And that’s why Congress took interest-rate selections out of the fingers of politicians and created a comparatively unbiased Federal Reserve Board. It’s simpler to make the unpopular resolution to lift charges if in case you have a 14-year time period as a Fed governor or are president of a regional Federal Reserve financial institution.
Independence doesn’t assure errors gained’t be made. It simply will increase the percentages that in the event that they’re made, they’ll be errors of financial judgment and never makes an attempt to curry favor with voters.
The Fed’s independence isn’t absolute. Congress might move laws undoing it. The president appoints the governors and the Senate approves them. The Fed chair testifies frequently earlier than Congressional committees and solutions questions.
However having lengthy phrases and being detachable just for trigger, the governors do have a substantial measure of independence. Like every Fed chair, present chair Powell desires to maintain it that method. Throughout his six years as chair, Powell has proved politically astute in coping with Congress.
Doing the identical with this president will show more difficult.
At their January assembly, the seven governors and 5 Federal Reserve Financial institution presidents who sit on the rate-setting Federal Open Market Committee didn’t give the president what he mentioned he’d demand. Having lowered their benchmark rate of interest a full proportion level since final September, the FOMC voted this time to maintain charges unchanged.
At his post-meeting press convention, Powell mentioned the Fed desires to see extra progress in lowering inflation towards the Fed’s 2% aim earlier than chopping once more. To questions concerning the president’s remark that he would demand decrease charges, Powell gave uncombative solutions.
“I’m not going to have any response or remark in anyway on what the president mentioned. It’s not applicable for me to take action,” Powell mentioned. “The general public must be assured that we’ll proceed to do our work as we all the time have, specializing in utilizing our instruments to realize our targets” – secure costs and most employment.
He mentioned the Fed would proceed to make its selections by learning and analyzing financial information. “Don’t search for us to do the rest.”
Whether or not preserving his head down will work for Powell stays to be seen. It’s a very good begin, although.
President Trump has proven he’s delicate to how monetary markets react. He would possibly need to needless to say if a future Fed fee minimize is perceived as caving to his calls for, the monetary market response can be very detrimental. The markets need an unbiased Fed.
Former longtime Wall Avenue Journal Asia correspondent and editor City Lehner is editor emeritus of DTN/The Progressive Farmer.
This article, initially printed on February 4 by the latter information group and now republished by Asia Occasions with permission, is © Copyright 2025 DTN/The Progressive Farmer. All rights reserved. Observe City Lehner on Twitter: @urbanize