{"id":10997,"date":"2025-03-01T11:26:41","date_gmt":"2025-03-01T11:26:41","guid":{"rendered":"https:\/\/finderica.com\/?p=10997"},"modified":"2025-03-01T11:26:41","modified_gmt":"2025-03-01T11:26:41","slug":"a-fed-takeover-by-trump-or-any-other-president-is-a-scary-thought","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=10997","title":{"rendered":"A Fed Takeover By Trump \u2014 Or Any Other President \u2014 Is A Scary Thought"},"content":{"rendered":"\n
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WASHINGTON, DC – NOVEMBER 02: (L to R) U.S. President Donald Trump looks on as his nominee for the … [+]<\/span> chairman of the Federal Reserve Jerome Powell takes to the podium during a press event in the Rose Garden at the White House, November 2, 2017 in Washington, DC. Current Federal Reserve chair Janet Yellen’s term expires in February. (Photo by Drew Angerer\/Getty Images)<\/span><\/p>\n

<\/fbs-accordion>Getty Images<\/small><\/figcaption><\/figure>\n

Fortune<\/em> has an article by Greg McKenna that is disturbing if you follow financial markets and monetary policy at all. It says that President Donald Trump has a path to end the Federal Reserve\u2019s independence<\/a> for a full Fed takeover.<\/p>\n

The disturbing part is not that Trump would have a way to politicize the Fed, but that any president would \u2014 as many have wanted and tried.<\/p>\n

Historic Fed Takeover Attempts<\/h2>\n

Before getting into what presidents have done, start with the 1913 creation of the Federal Reserve by Congress through the Federal Reserve Act. The impetus was a series of financial panics. Previous attempts at using a central bank had fared badly. The Treasury controlled the money supply but had some inherent problems that reduced liquidity, especially in times of need.<\/p>\n

The Fed was originally set up as an organization theoretically independent of politics and whatever party was in power. It didn\u2019t take long before presidents tried to convince or even push the Fed into particular actions. In the late 1920s, Herbert Hoover pressed the Fed to raise interest rates<\/a> because he thought Wall Street speculation was uncontrolled and that the economy would overheat.<\/p>\n

Instead, the Fed sharply cut interest rates. That stoked borrowing with high amounts of investment on margin, essentially borrowing money for speculation. The stock market crash of 1929 was the first major domino in the developing economic disaster. Then Hoover pushed for lower rates for a recovery, and to save his chance at reelection, and the Fed raised them, freezing credit and tipping the country into the Great Depression.<\/p>\n

The Fed\u2019s choices aren\u2019t always right. Then again, neither are presidents. Most commonly, presidents have pushed for interest rates that would help their reelection prospects. Harry Truman sharply fought with the Fed to get lower interest rates. John F. Kennedy often met with then-Chair William McChesney Martin, Jr., and wasn\u2019t shy about saying what he wanted.<\/p>\n

Lyndon B. Johnson, wrapped up with the Vietnam War after Kennedy\u2019s death, notably pushed Martin up against a wall when fighting about rates. Richard Nixon often had the chair of the Fed at that time, Arthur Burns, to the Oval Office to push for monetary policy that would boost short-term job gains even if there were a longer-term economic price to pay, some of the famous secret tapes would eventually show.<\/p>\n

Former Chair Paul Volcker wrote in a memoir that Ronald Reagan kept approaching him to stop raising the benchmark federal funds rate, which eventually topped 19%, to battle heavy inflation.<\/p>\n

From Bill Clinton through Barack Obama, there was a tacit norm to avoid outward and obvious pressure on the Fed. It also takes two terms of a president to appoint a majority of the central bank\u2019s board to get the influence needed to operate more quietly.<\/p>\n

That brings the story back to Trump, who, in his first term, pushed the Fed and Chair Jerome Powell to lower interest rates. He publicly taunted Powell and heavily criticized the monetary policy strategy.<\/p>\n

Fed Takeover Desires?<\/h2>\n

In his new term, Trump had been critical of the organization. In early February when the Fed held rates steady, he said, \u201cHolding the rates at this point was the right thing to do.\u201d And then, after the decision, he lashed out at the organization more generally.<\/p>\n

Sen. Elizabeth Warren recently pointed out that Stephen Miran, Trump’s nominee to chair the Council of Economic Advisers, has “called into question the central bank\u2019s independence<\/a>,\u201d as Yahoo Finance<\/em> reported.<\/p>\n

As many presidents have wanted to control the Fed, or at least rates, the desire is intellectually understandable but not desirable. If monetary policy were under Executive branch control, the temptation to meddle would be too great. The almost inevitable result would eventually be a recession resulting out of political ambition.<\/p>\n

Now comes the Fortune story, because it sounds as though the Fed\u2019s independence isn\u2019t solidly guaranteed.<\/p>\n

\u201cFed independence is thought to be this really important thing and something that the central bank guards very carefully,\u201d David Zaring, a professor of legal studies and business ethics at the University of Pennsylvania\u2019s Wharton School<\/a>, told Fortune<\/em>, \u201cand it doesn\u2019t have a whole lot of legal basis.\u201d And according to Fortune\u2019s reporting, the Supreme Court has given signs that an administration\u2019s move to subsume the central bank through a Fed takeover might receive their support.<\/p>\n<\/div>\n

Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

WASHINGTON, DC – NOVEMBER 02: (L to R) U.S. President Donald Trump looks on as his nominee for the … [+] chairman of the Federal Reserve Jerome Powell takes to the podium during a press event in the Rose Garden at the White House, November 2, 2017 in Washington, DC. Current Federal Reserve chair Janet<\/p>\n","protected":false},"author":1,"featured_media":10998,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[196],"tags":[137,1728,1473,3186,4494,563],"class_list":{"0":"post-10997","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance-news","8":"tag-fed","9":"tag-president","10":"tag-scary","11":"tag-takeover","12":"tag-thought","13":"tag-trump"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/10997","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10997"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/10997\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/10998"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10997"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10997"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10997"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}