Former President Donald Trump wants a say in monetary policy decisions. He has tried to clarify that his goal is simply to give his opinion. But we know that he was upset with and opposed to the Federal Reserve’s recent decision to lower interest rates by half of a percentage point and that he toyed with firing the Fed’s chair, Jerome Powell, in his first term. Moreover, Mr. Trump’s supporters apparently have compiled a list of proposals that give the former president new ways to exert influence.
Giving any president a substantive role in monetary policy would be a terrible idea. Congress created the Fed to make such calls using its judgment free from short-term political pressures. History tells us that eroding that independence — allowing politicians, whose horizons extend only to the next election, to have an effective say on policy — produces inflation and economic instability.
The threat of substantive presidential input to monetary policy would undermine the public’s trust that the Fed will do what it judges to be in the best long-term interest of the economy and the American people. That could lead to higher interest rates as investors price in faster price increases and more uncertainty.
Mr. Trump is far from unique. Many presidents who “wanted a say” in monetary policy have exerted public and private pressures on the Fed’s interest rate decisions. Harry Truman wanted to keep the Fed on a short leash so that it would continue the low interest rates it maintained to help finance World War II. Lyndon Johnson leaned all over (literally as well as figuratively) Chairman William McChesney Martin to keep rates low when inflation was rising during the Vietnam War. Richard Nixon exerted considerable pressure on Arthur Burns in the 1970s to keep the economy roaring into elections, and unfortunately, Burns acceded, contributing to the great inflation of the 1970s.
Ronald Reagan, through his then-campaign manager James Baker, ordered Paul Volcker not to raise rates in the lead-up to the 1984 election. George H.W. Bush was a frequent public voice urging Alan Greenspan to lower rates in the late 1980s and early 1990s. In his first term, Mr. Trump called Mr. Powell an “enemy” of the country for not following his advice to ease policy.
Presidents’ desires to influence the Fed are understandable. They get blame or credit for the state of the economy but don’t have their hands on perhaps the most important lever, which is monetary policy.
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