Will Trump respect the Fed’s independence?
Subscribe to enjoy similar stories. When I joined the Federal Reserve Board as vice chairman in 1994, the central bank was already the center of the universe for financial-market specialists. To the general public, however, it was an obscure government agency that did .
. . what? One of my colleagues joked that most Americans thought the Federal Reserve was a national forest.
No longer. The Fed is often the focus of national attention, as it was recently when it announced that it expected to cut interest rates only another 50 basis points in 2025. This issue—how many rate cuts the Fed will pursue and when—matters a great deal to bond traders.
Yet in the scheme of things, it’s minor compared with an issue the nation is likely to face once Donald Trump returns to the White House: the independence of the Fed. This is déjà vu all over again. During Mr.
Trump’s first term, he frequently lambasted the Federal Open Market Committee, and Chairman Jerome Powell personally, for not cutting rates fast enough. Now the FOMC seems almost certain to pause its rate cutting at its Jan. 29 meeting.
Whether it resumes cuts on March 19 is in question. If it doesn’t, will Mr. Trump hold his temper? It would doubtless be in the country’s best interest if he did.
Several centuries’ worth of evidence showed that political control of monetary policy often led to high inflation, whether from monarchs clipping the currency or governments running the printing presses. More recent statistical evidence, between the 1960s and 1980s, showed that more independent central banks generally produced lower inflation without slower growth. Seeing that technocrats executed monetary policy better than politicians, many nations made their central banks
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