The Federal Reserve will spend a great deal of effort and money celebrating the birth of this institution 100 years ago but will make little mention of the slow death of its independence.
This troubling trend has been due to the recent chairmen themselves, having embroiled themselves far too deeply into White House and congressional politics.
I began monitoring the Fed's political independence in the mid-'90s by making Freedom of Information Act requests of the chairman's daybook. I carefully tracked the number of monthly meetings with White House, congressional, or other political figures. This FOIA research technique has now become a regular tool of journalists and others monitoring government officials.
Arthur Burns, who succumbed to pressure from President Nixon to lower rates to help him get reelected, is generally regarded as the most political Fed chairman in modern times. My research concluded Alan Greenspan was the second-most political Fed chairman, especially during the George W. Bush administration.
My research also concluded that Ben Bernanke has become the third most political Fed chairman in modern times, primarily due to meetings with key congressional leaders in addition to those at the White House.
Despite getting Obama to nominate him in 2009 for another four-year term as chairman, Bernanke seriously underestimated the very negative public and congressional reaction to his handling of the financial crisis. The big bailouts, stubbornly high unemployment, and lack of an economic recovery resulted in just a 41% approval rating for Bernanke in September 2009 according to the Bloomberg National Poll. Realizing his Senate Banking confirmation could be in jeopardy, Bernanke began politicking to preserve his position.
My FOIAs revealed that he contacted 24 senators, fully one-fourth of the U.S. Senate, almost all at congressional office buildings between Aug. 4 and Nov. 30, 2009, including conversations with 18 of the 23 members (more than 75%) of the Senate Banking Committee. They ultimately recommended his confirmation with a 16-to-7 vote (70%).
My FOIA analyses of the calendars of Fed chairmen since 1996 have never witnessed such an unprecedented, full-court political press in a short period. This was totally inconsistent with Bernanke's vow before his original Nov. 15, 2005 Senate confirmation, that "I will be strictly independent of all political influences."
The recent "ClusterFed" over the nomination of the new Fed chair brought this disturbing trend of dying Fed independence to a head.
Obama's first choice was Larry Summers. His confrontational and nontraditional management style unfortunately created enemies within government, academia, and elsewhere. Some of them, like Harvard Professor Elizabeth Warren, were now in powerful positions like on the Senate Banking Committee, which singlehandedly killed Summers' nomination by announcing it was dead on arrival.
This sea of censure resulted in Summers' withdrawal from candidacy and Obama's nomination of his second choice, Janet Yellen. While lacking in business and Wall Street experience, she has a strong background in academia and government, including being appointed by Bill Clinton as chairman of the Council of Economic Advisers.
Nonetheless, she was not Obama's first choice, and Senate Banking hijacked his appointment authority. Obama saved face by highlighting her near-myopic focus on unemployment, not to mention her being the first female Fed chief.
So, do we blame Warren and other anti-Summers and pro-Yellen senators for this transition of power from the White House to the Senate?
No, the blame goes to Bernanke. He invited this unfortunate political intrusion and empowered Senate Banking by effectively doing the same thing in reverse four years ago by asking more than 75% of them for support
The future of Fed independence will greatly depend on Yellen's role in politics, particularly in the 2016 presidential election. Will she allow monetary policy to be tainted by political pressure, especially from those who helped her in Washington?
Kenneth H. Thomas, an independent bank consultant and economist based in Miami, was a lecturer in finance at the University of Pennsylvania's Wharton School for more than 40 years.