Tuesday Topic: A Tame Fed?

Rob, we have so clearly recently observed the problem that arises when rates are not generally in alignment with economic conditions.  Inflation is an inevitable result of inappropriate monetary policy that would arise from patronizing political maneuvering. This has nothing to do with any political party.  We already struggle to effectively reign in fiscal policy.  Anything that reduces the independence of those charged with the Fed's Dual Mandate would most certainly compound our economic volatility.

Neil Stanley (BOD) Board Member TS Banking Group 15 E Main St Treynor , IA 51575 Tel:  712.487.3000 Fax:  712.487.3475 Web:  www.tsbg.com

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Former Trump administration officials and other allies have been allegedly secretly drafting proposals to enable Trump, if elected to a second term, to play a more active role in setting interest rate policy, according to the Wall Street Journal. They also argue Fed regulations should be reviewed by the White House and that Trump should be able to fire Fed Chair Jerome Powell.

This is, of course, not a new idea, nor is it unique to conservative circles. Just before the WSJ story broke, Matt Stoller,  who works for the left-leaning American Economic Liberties Project, declared on X (formerly Twitter): "The Independence of the Fed isn't  a thing and Biden should stop acting like it is." He linked to a New York Times story that said some Democrats are urging Biden to pressure the Fed to lower rates (so far, Biden has resisted these calls).

I've discussed with various guests on Banking with Interest whether the Fed is influenced by politics-or partisanship, however you want to describe it-but these proposals effectively throw central bank independence out the window.

What do you think, could any of these proposals actually come to pass? How would markets react to a White House attempt to end the Fed's independence? Or if the Fed truly is political, would these proposals merely make unofficial practices official?