One of Donald Trump’s gravest sins in the eyes of financial punditry has been his willingness to openly criticize the actions of the Federal Reserve. According to the Serious People in Washington and New York, the President voicing his opinion on monetary policy is a dangerous challenge to the independence of the central bank. In fact, the preserving the appearance of a central bank beyond politics is so important it is held up as the leading argument against a full audit of the Fed.
Interestingly, an excerpt from an upcoming memoir written by former Paul Volcker offers a reminder of how ridiculous this view is. As they mention during a New York Times interview with the former Fed chair:
Mr. Volcker recounts being summoned to meet with President Ronald Reagan and his chief of staff, James Baker, in the president’s library next to the Oval Office in 1984.
Reagan “didn’t say a word,” Mr. Volcker wrote. “Instead Baker delivered a message: ‘The president is ordering you not to raise interest rates before the election.’” Mr. Volcker wasn’t planning to raise rates at the time.
“I was stunned,” he wrote. “I later surmised that the library location had been chosen because, unlike the Oval Office, it probably lacked a taping system.”
Of course this is not the first time a former Fed chair has admitted to receiving pressure from 1600 Pennsylvania Avenue. In his own memoir, Arthur Burns wrote about how Richard Nixon – who he described as his “best friend” – constantly lobbied for more accommodative monetary policy. Volcker successor, Alan Greenspan, has also said that he received input from the various administrations he served under “all the time.” “You’ll find every president has an insight into how the markets work and where interest ought to be, which is always superior to that of the Federal Open Market Committee,” he told CNBC last week.
Once again we see that the real issue beltway pundits have with Trump is a matter of style over substance, Trump’s sin is doing publicly what past presidents have done in private. While I prefer candidate Trump’s Fed criticism over President Trump’s, the public scrutiny of the central bank’s decision should be seen as a positive. While the Federal Reserve’s track record with monetary policy leaves a lot to be desired, it has been extraordinarily successful at promoting itself through a network of journalists and academics that have all helped sell the myth central bank is beyond politics. It’s not and has never been.
It’s time to acknowledge that fact and to not allow the Fed to avoid a proper audit. Or – better yet – competition.
