Can the Fed stay independent?

It’s not a secret that Janet Yellen hails from the left-leaning San Francisco Federal Reserve Bank originally. It’s also not a secret that the Fed takes global matters into consideration when setting policy. This might present a problem in a new “America First” environment in Washington.

For how much longer will the Fed Chairperson – or the organization it its entirety – be given the leeway to operate apolitically and independently as it always has since its inception a century ago? Will the White House seek to gain control or additional oversight of the institution? Will there come a time when the President (and his people) desire to become more involved with the interest rate policy-setting mechanism? How will the relationship between the Fed and the administration fare should there be an economic or financial market disruption?

These questions are worth considering in light of a letter sent from Patrick McHenry, the Vice Chairman of the House of Representatives Financial Services Committee.

You can read it here (via FT Alphaville):

mchenry-letter-to-yellen

Janet Yellen’s term as the Fed Chair ends January 18th and she’s slated to stay on the Board of Governors through 2024. Any thoughts about whether or not she lasts that long, voluntarily or otherwise?

I’ve been thinking a bit about William McChesney Martin, the Fed Chairman who came in under Truman in 1952 and stuck around until the Nixon administration in 1970. Kennedy didn’t trust Martin at first, but ultimately asked him to stay on. The 1960’s were one of the greatest uninterrupted decades of prosperity ever, and Martin’s independence had a lot to do with that. LBJ wanted “low rates all the time” but Martin stood up to this pressure, notably in 1965 with rate hikes the President fought against.

Can any Federal Reserve official stand up to the “new political order” that President Trump’s closest advisors are now openly discussing? We might find out.

 

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