Now that President Donald Trump is engaged in a bitter dispute with Federal Reserve Chair Jerome Powell, the public is getting a public view of what the relationship between the White House and Eccles Building has been like all these years, dating back to the Great Depression.
It’s unclear if the central bank is listening to President Trump, though it’s a bit convenient that the central bank is hitting the pause button on interest rates after a series of tweets from Trump’s thumb complained about rising rates.
But don’t think the Fed listens to Trump or any presidents for that matter, says Minneapolis Federal Reserve Bank President Neel Kashkari.
Speaking in a town hall in Fargo, North Dakota, Kashkari told the audience that the Fed only pays attention to economic data and never politics or the desire of politicians.
“Presidents are free to say what they want,” he said. “I can tell you with great confidence that my colleagues and I don’t pay any attention.”
Oh, really?
Here is what Liberty Nation writes:
The Fed’s partnership with Washington commenced in the 1930s, when Marriner Eccles, the seventh chairman of the Fed, “coordinated” monetary policy with President Franklin Delano Roosevelt’s administration policies. Ostensibly, like so many Americans back then, Eccles immensely admired FDR and he evidently wanted the Keynesian prescription to cure the nation’s woes. Unfortunately, the Great Depression went on longer than it needed to, thanks to FDR and the Fed.
The 1960s and 1970s were great times for the White House-Fed tag team.
Fed Chair William Martin was pressed by President John F. Kennedy to speed up money creation. Martin acquiesced to the request, and the money supply expanded by 3%. Kennedy’s successor, President Lyndon Baines Johnson, needed faster money printing to cover the costs of the Vietnam War. Once again, Martin approved the demand, and money creation topped 5%.
Not to be outdone by their Democratic rivals, Republican presidents joined in on the fun. When Arthur Burns became head of the Fed, the administration of President Richard Nixon needed money to flood the economy to fight stagflation, buoyed by price and wage controls of 1971. The printing press printed as much as 10% of new dollars. Moreover, according to Kevin Phillips, a political and economic commentator and one-time Nixon strategist, Nixon ordered Burns to establish a new inflation figure that would make it seem less intimidating. This became known as “core” inflation.
When President Gerald Ford took over the reins, he informed Burns that he wanted money growth to slow down, prompting Burns to slash it to 4.7%.
The 1990s was also an interesting time for monetary policy and the national economy because Alan Greenspan became instrumental in President Bill Clinton’s initiatives. Clinton viewed Greenspan as a “man we can deal with,” while the administration averred that they had a “gentleman’s agreement” regarding the Fed facilitating its economic initiatives. To help grow the economy, $1.4 trillion of new money was printed between 1993 and 2001. Not only did it fuel the dot-com bubble, it also allowed then-President Bill Clinton to fend off widespread impeachment support for a couple of years.
Sorry, Kashkari, the Fed is a political institution, and it always has been. Trump is just expecting the Fed to behave in the manner in which it always has for nearly a century.
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