LEEROY JENKINS!!!
August 29, 2019·18 comments·Money
The Fed has long operated in a zone of carefully maintained ambiguity: officially apolitical, but arguably making decisions shaped by political considerations. That ambiguity just collapsed. A former Fed president's public call for monetary policy to be used as a political weapon has forced the institution to confront an impossible choice: either accept the accusation that it's already been doing this, or escalate into even more direct political conflict. Either way, the charade is over.
• A former top Fed official has openly argued the central bank should use interest rates as leverage against a sitting president. This isn't a leak or a misquote. It's a published opinion piece explicitly stating that monetary policy should serve electoral outcomes.
• The Fed's century-old claim to independence was always partly fictional. But the fiction only works if everyone agrees to maintain it. Once someone breaks the agreement publicly, the entire structure becomes untenable.
• Now the Fed faces a trap with no exit. If they cut rates aggressively, they validate accusations of political capitulation. If they don't, they face withering political attacks they have no authority to defend against.
• What makes this moment different is that plausible deniability has evaporated. The institution can no longer claim its decisions are purely technocratic when influential insiders are openly advocating for political use of monetary tools.
• This may mark the beginning of the end for the Federal Reserve as an independent institution. Once political actors understand they can pressure central banking decisions through public confrontation, the logic of keeping the Fed separate from executive control disappears.
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Comments
Ben, your analogies are awesome, and this is one of my favorites. LOVE ME SOME LEEROY!!!
However, I’m going with (A). At least he ain’t chicken. LOL
If the Fed loses its independence at the same time that the world wakes up the fact that monetary policy is not a universal panacea for economic woes maybe it isn’t all bad. If you imagine being a fly on the wall in 1910 at Jekyll Island versus say being a fly on the wall at the Constitutional Convention in 1787. I trust the judgement of the later more. On the other hand, even the nameless bankers of 1910 seem like giants compared to our current crop of Lilliputians.
Ah the good old days of World of Warcraft Vanilla. That was a damn hard room to do and to be honest…the video is hilarious. A couple of points…
Oh my. So much fun. Here is the video for those of you that are wondering what I am yammering about.
https://www.youtube.com/watch?v=mLyOj_QD4a4
The Dud…or, at least this Dud, does not abide.
$40 trillion Fed balance sheet directed by a Presidential mobile phone app from a suite at the Plaza Hotel
The Fed ends in 6 years. The planet becomes uninhabitable in 12 years. Stop the world - I want to get off.
The Dud thinks the fed should control the presidency in 2020, and the president thinks he should control the fed. Both of them think they can control the economy! Vanity of vanities, says the Preacher, vanity of vanities! All is vanity!
The Fed is a creature of Congress. Ben, do you really think the Congress can agree to do anything nowadays? Especially if it entails giving the Executive ALL the power…
“And that’s certainly one plausible explanation for Bill Dudley’s now infamous opinion piece in Bloomberg Opinion this week, where he says that the Fed should explicitly use monetary policy as a weapon against Donald Trump’s presidency.”
Don’t you think they already have been? They practically refused to raise rates during the prior administration even when economic growth was strong, implicitly because they didn’t want to damage Mr. Obama. They have had zero such compunctions during this administration even at the lagging end of a supremely long bull market with the yield curve flashing yellow.
As far as I’m concerned this is just an honest admission of the game they’ve been playing all along.
Ben, being at the point we are today, where you can say that the 50bps are a line in the sand for the future within six years, we can already say that the Fed as we know it no longer exists. And I don’t think it’s Trump’s fault. It was a death of their own making. This point was decided long ago with the decision to go past QE1. At that point, it was already clear that if it didn’t work quickly (and who thought it would?), there was no getting back to normal. Without getting back to normal, the Fed, in function if not in name, no longer existed as we knew it or as we still imagine it. What HAS changed this year is that, unlike the last ten, they aren’t even pretending any more. Thanks for ET and the home you’ve made for the pack.
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