At his Press Conference last week, former president Donald Trump talked about his dream relationship with the US central bank, the Federal Reserve.
I feel the president should have at least they in there.
Yeah, I feel that strongly.
I think that in my case, I made a lot of money.
I was very successful and I think I have a better instinct than in many cases people that would be on the Federal Reserve or the Chairman.
Presidential candidate for the Democratic Party Kamala Harris though had a rather different take.
The Fed is an independent entity and as president, I would never interfere in the decisions that the Fed makes.
All right, a fight over economics sounds like a case for The Indicator.
This is The Indicator from Planet Money.
I'm Darian Woods. Today on the show, an age old tension — the Federal Reserve v.
President. We explain how central banks around the world became independent, and why most economists wanted to stay that way.
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... and It's condition.
Buildings are independent from politicians when it takes action on things like changing interest rates to lower inflation with inflation, which we're laser -focused on today.
Right, we learn that the consumer shows, and then there's wildcard.
It's a podcast from NPR that the New York Times named as one of the best of 2024.
It's hosted by me, Rachel Martin, I ask guests like Issa Rae and Bowen Yang revealing questions was accelerated by the feds' independence from political meddling – job was made easier by its independence, and inflation could have been but not been independent.
Raising interest rates is a challenging lever to pull.
This brings down prices by slowing the economy down.
It makes new mortgages more expensive, it puts people temporarily out of work.
So it's not a popular line of action for any politician.
If their goal is to get elected in a few months or even in a few years, they're not going to worry about the long run consequences of their policy actions.
So, lower interest rates, they maybe boost the economy right now.
Double digits. At the same time, the stock market was doing really well.
And that was especially true for a very large bet Mark made on a certain auto company.
I put almost all of my innovation net worth into Tesla.
Independent. We don't mean its completely separated from democracy.
While the president can't say, say, lower interest rates when they feel like they're getting too high, the Fed is accountable to the public in other ways.
The President appoints the members of the Federal Reserve board, the Federal Reserve's goals, low inflation and high jobs by Congress.
And the agency is accountable to Congress.
Just last month, Republican Senator John Kennedy grilled Fed Chair Jerome Powell.
I've got two seconds.
So, when are you going to lower interest rates?
I'm today not going to be sending any signals about the timing of any future actions.
As much as politicians might want to control interest rates, they can't.
And that's thanks to an accord between the Treasury and they were running high after World War II and during the Korean War.
But the Fed had a problem, it was effectively controlled by the Treasury department, which was led by the president's Treasury secretary.
Secretary, and that got in the way of it by the president's Treasury Secretary.
And that got in the way of the Fed doing its main job, influencing the money supply, keeping inflation down - aka monetary policy!
So what's called the Treasury Fed Accord, everyone, is when the Fed finally was kind of granted independence to be able to conduct monetary policy, the way we would think of it today.
That didn't mean that presidents didn't try to influence the Fed!
in his Fed chair in the 1970s.
Most famous would be Richard Nixon when he was pressuring Arthur Burns for looser monetary policy to try to help his reelection chances.
Lyndon Johnson also twisted the— Johnson also twisted the screws on his Fed chair at the time.
And through the 1970s and 80s, a consensus started to emerge among economists.
The job of central banks to bring down inflation was a lot easier without politicians institutions getting in the way, trying to pressure the lever down.
And in return for more autonomy, central banks could be more transparent about their decision making.
As economists' benefits of transparency and of independence, it kind of became more accepted and more part of the culture at the Fed and even the culture at central banks around the world.
The Bank of Japan, the Bank of Mexico, and the Bank of England became independent in in the 1990s.
The European Central Bank was built as independent from day one.
And the evidence suggests that independence works to control ...
Karolina Garica is a political science professor at the University of Essex in the UK.
Karolina and her coMeanwhile research finds that countries with more independent central banks have lower levels of inflation.
But like all good social scientists, she's quick to note that correlation doesn't always equal causation.
It's not causation, but it's a pretty strong correlation that falls across time from the seventies to two years ago and across different kinds of governments.
A very strong correlation that is definitely pointing at a direction and winking.
California, countries that have eroded their central bank independence.
You can see central bankers being fired.
And then inflation spiking.
I mean, I'm from Argentina and I can give you many examples.
And it has happened not only in Argentina has happened in Turkey has happened in Hungary.
When an attack to central bank independence becomes public, you can see these facts in inflation going up.
In the US, and this led to a norm.
Presidents were letting the central banks do their thing until the 2016 election when Trump started publicly and loudly criticizing the federal Reserve that continually and loudly criticizing the Federal Reserve that continued into his presidency, he appointed Fed Chair Jerome Powell, but started making
these public swipes against him from 2018.
This was a major shift in the president's relationship with the Fed.
There had been a norm for many years that the president wouldn't, well I don't know which presidents had Twitter, but they wouldn't go on Twitter or something like that ran there, So that was a shift in kind of what was seen as acceptable for a president to do.
And with Donald Trump's comments now, it seemed that he's saying that if he's elected, there might be more structural change, giving the candidate Jaydee Vance supported this over the weekend.
If the American people don't like our interest rate policy, they should elect somebody different to change that policy.
Nothing should be above Democratic debate in this country when it comes to the big question.
Things should be above Democratic debate in this country when it comes to the big questions confronting the United States.
Both Carolina and Karala think that it's a bad idea.
Karala says these comments are revealing.
You frequently have to disagree with what the Federal Reserve does, they almost always disagree on the side of we should have looser policy, we should have lower interest rates.
So it shows you. Well, if we had left...
Well, if we had left monetary policy in the hands of the President, we would have had more inflation.
That said, Carla says the public does want accountability.
Like, how did we even get such high inflation?
What went wrong? If I should give them that kind of accountability, I should be transparent about the mistakes they made and what they've learned and what they might change.
Carla does think there is a grain of truth there, and the frustrations that might lead someone wanting a politician to strong arm the economists.
Think about what we've been through the high inflation, the pandemic, and then the global financial crisis before that.
The Fed was scrambling to help of course, and that meant expanding its role and taking on unconventional new action, like buying up tons of mortgage securities and bonds.
You can see why there is kind of more calls for more oversight of the Fed here.
The APS basic income experiments have been happening around the country, and it's worth But noting so far the research on their effectiveness has been kind of mixed.
But based on what they've seen so far in Denver, Mark, Katie and Mariah argue what we can do ourselves.
Okay John F Hannity!
Wow, what a pep talk!
I love it. — Comp heavens!
— This episode was produced by Corey Bridges with engineering by Cino Lafredo.
It was fact checked by Sarah Juarez, and edited by Kate Kucannon.
The indicator is a production of NPR.
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