Wednesday, August 28, 2019

A Politicized Federal Reserve

And you were worrying about Russian interference in our sacred democratic elections. If so, you were looking in the wrong place. You should have been looking at the Federal Reserve.

You know that President Trump has been blaming bad Fed policy for the slowing economy. You also know that Fed officials and their supporters have widely decried Trump’s interference with Fed policymaking. For the record, if we are to believe Alan Greenspan, all presidents complain to the Fed about its policy. Trump is merely more vocal and more public than the others.

Consider a recent column by William Dudley, formerly president of the Federal Reserve Bank of New York and formerly vice-chairman of the Federal Open Market Committee. In it Dudley recommends that the Fed should not lower interest rates to create a bulwark against recession, because, in his opinion, that would help advance the presidential candidacy of one Donald Trump.

Has he simply exposed what Trump was denouncing? That the Federal Reserve weighs in on elections, by using monetary policy to advance or diminish the chances of a sitting president. So much for independence.

The Wall Street Journal editorializes:

“Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions,” Mr. Dudley asserts. We also think monetary policy should focus on prices rather than trade. But Mr. Dudley seems to be saying the Fed should do nothing to assist the economy even if it heads into recession. Then he goes further and essentially says the Fed should join The Resistance.

“There’s even an argument that the election itself falls within the Fed’s purview,” Mr. Dudley writes. “After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.”

The Journal editorial page had previously suggested that during the Obama administration the Fed manipulated monetary policy to prop up the economy and to advance the Obama agenda:

These columns wondered if Mr. Dudley was politically motivated while he was at the Fed, favoring bond buying to finance Barack Obama ’s deficit spending, urging the Fed to intervene in markets to boost housing, and keeping interest rates low for as long as possible. And now here Mr. Dudley is confirming that he views the Fed as an agent of the Democratic Party.

So, let’s forget about the notion that the Fed is above politics. In unscrupulous hands it has no problem playing politics with monetary policy, in the interest of the Democratic Party. This tells us that the Obama recovery might well have been produced in some part by Fed policy and that Trump may have been right when he denounced the Fed for tightening policy at a time when it would damage the economy and compromise Trump’s election prospects.


trigger warning said...

"'There’s even an argument that the election itself falls within the Fed’s purview,' Mr. Dudley writes."


There's "an argument", a word theory, for any ridiculous position. For example, Larry Tribe "argued" in "The Curvature of Constitutional Space" that Einstein's general theory of relativity invalidates a strict constructionist (e.g., Scalia) interpretation of the US Constitution.

Moreover, among Proglodytes at least, the more ridiculous and absurd the premise, the greater the appeal of the argument (cf., male pregnancy).

Anonymous said...

Might I suggest "The Creature from Jekyll Island" by G. Edward Griffin. The Bibliography is a good read.

Sam L. said...

Dudley shows that the Deep State LIVES!!!11!! It's real. It's dangerous.

David Foster said...

"Larry Tribe "argued" in "The Curvature of Constitutional Space" that Einstein's general theory of relativity invalidates a strict constructionist (e.g., Scalia) interpretation of the US Constitution."

Einstein later said he wished he'd called the Theory of Relativity the Theory of Invariance (referring to the invariant speed of light) instead. Would that he had.

Ignatius Acton Chesterton OCD said...

I love this idea that an institution located in Washington, D.C. is -- or should be -- "free of politics." What an infantile notion, devoid of any understanding of human nature. Compound it with control of the nation's money supply, and you have to be hopelessly naive to think that politics doesn't have any impact on decision-making.

Ignatius Acton Chesterton OCD said...

Antonin Scalia strongly disagreed that he was a "strict constructionist." He was an Originalist, meaning that the Constitution should be interpreted based on what the text meant at the time of the Founding, not what words have come to mean over time as language evolves. Scalia's objection is that strict construction is textualist, offering limited room for interpretation or outright restriction in application to cases. In that sense, removing the use of reason at all. See Scalia's opinion in District of Columbia v Heller (2008), as it is probably the best example of Originalist interpretation. A strict constructionist would consider the literal use of the word "militia" in the Second Amendment, but an Originalist view interprets it in a different light -- as the "militia" was the body of military-aged men at the time, who were all citizen soldiers. Strict constructionism is so severely limiting that the law would become sclerotic, and we would literally rot according to what the text says, rather than what it means.