Keep Trump, and Every Other President, Out of the Fed
The main job of a central bank is to maintain the purchasing power of the currency, yet the U.S. dollar has depreciated about 97 percent since the Federal Reserve was created in 1913. The Fed has done a profoundly bad job, especially in recent history. Having 19 unelected bureaucrats in charge of the most important price in the economy—the price of money—is a bad idea. If the Federal Reserve were abolished tomorrow, the markets would do a serviceable job of determining the path of short-term interest rates and allocating capital efficiently.
But we’re stuck with the Fed for now. To the extent a central bank is necessary, you want it to be free from political influence. Studies show a strong negative correlation between central bank independence and the rate of inflation. The more independent a central bank is, the more likely it will be willing to do the hard thing and raise interest rates to stop inflation. When politicians have influence over the central bank, invariably, there is pressure to lower interest rates because it speeds up the economy and reduces unemployment—things that politicians like. But as you can see from a couple of contemporary examples (like Turkey and Argentina before President Javier Milei took office) political influence on monetary policy is a very bad thing.
Enter Donald Trump, who wants to have direct influence over monetary policy. You might recall that he spent most of his first term haranguing Fed Chairman Jerome Powell (whom Trump nominated in November 2017) to
Article from Reason.com
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