The zombie idea of Federal Reserve independence keeps staggering along

Al Drago/Bloomberg

The long-dead concept of an independent Federal Reserve keeps rising, zombie-like, from its Constitution Avenue mausoleum, only to be put down again and again at the hands of presidents and overly political Fed chairs.

Fed independence first died in October 1971 under Chair Arthur Burns and again 30 years later in January 2001 under Chair Alan Greenspan.

This double homicide was first documented in my January 2002 CSPAN speech and later in my Nov. 1, 2013, op-ed in this paper titled "The Death of Fed Independence."

The Fed's most recent death in November 2021 was under current Chair Jerome Powell.

The culprits in this capital crime are the capitol's two most powerful people, the president and the Fed chair. My research shows they're equally guilty: Three Fed deaths mean six perpetrators.

As an economic coroner, my autopsies assign different percentage blames: 50/50 under Nixon/Burns, 25/75 under George W. Bush/Greenspan and 75/25 under Trump/Powell. The 50/50 average means equal president/fed chair blame for the three Fed deaths.

Washington is about power, so motives never change: securing reelection/reappointment and protecting legacy.

Independence was threatened before by Fed chairs and presidents but not always killed.

Chair Ben Bernanke lobbied 75% of Senate Banking during August-November 2009 to secure reappointment.

Several presidents pushed for lower rates during crises and wars. President Johnson bullied Chair William Martin in 1965, but his resistance protected his legacy and may have helped his reappointment.

The Fed has a Martin Building, but there's no Arthur Burns Building. A loyal Republican like President Nixon, Burns obediently slashed rates in 1971 at Nixon's insistence to help his reelection. Oval Office tapes confirm this. My autopsy assigns a 50/50 blame for Nixon's pressure and Burn's acquiescence.

Nixon won in 1972 but resigned in disgrace two years later. His successor reappointed Burns in 1974, but history remembers him as the worst Fed chair. His unprecedented rate reductions helped trigger the deep 1973-75 stagflation recession.

Kill Fed independence, and the result's the same: short-term gain, long-term pain.

The Nixon/Burns "ClusterFed" was corrected when Chair Paul Volcker ignored political pressure and hiked rates to record levels. That broke the back of inflation but precipitated the 1980-1982 double-dip recessions.

The Fed's second death in January 2001 was under Greenspan, a self-described libertarian Republican, and the new Republican President G.W. Bush. It began with a rare intermeeting 50-basis-point cut on Jan. 3, stimulating the economy and sending stocks soaring.

Three weeks later, during Jan. 25 congressional testimony, Greenspan famously flip-flopped from opposing to supporting Bush's tax cuts, ensuring enactment.

The best proof Greenspan was the second most political chair behind Burns, ironically his mentor and college professor, is my Freedom of Information Act or FOIA research.

My FOIA requests of the chair's daybook since the mid-1990s tracked meetings with White House, congressional, and other politicians. This FOIA calendar research methodology is now widely used by journalists, and the Fed and many other government agencies routinely post calendars online.

Knowing they're monitored, Fed chairs are careful as to whom and how often they meet. This, however, was not the case 25 years ago, when Greenspan had no idea his schedule was being examined.

My research revealed Greenspan became a fixture at the Bush White House beginning in January 2001. Greenspan averaged 49 meetings there annually through mid-2005, peaking at 68 in 2003 or once every 3.5 business days. This was four times his 12-meeting, 1996-2000 annual average, once monthly, under President Clinton.

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My FOIA findings, widely reported in the media, upset Greenspan, who shut down my FOIAs in the second half of 2005, along with my subsequent FOIAs for his limo drivers. 

Greenspan had several motives to get close to Bush.

First, to make amends for costing the 1992 reelection of his father, who blamed Greenspan, which "saddened" him according to his memoirs.

Second, Greenspan wanted to be renominated in 2004 to surpass Martin as longest-serving chair, a record he missed by months.

Third, Greenspan and his NBC chief Washington correspondent wife, Andrea Mitchell, D.C.'s #2 power couple, both benefited from mingling with White House elite.

Bush was a willing accomplice, carefully following his father's advice to stay close to Greenspan to win reelection and move legislation. It worked: Greenspan was reappointed and Bush was reelected in 2004.

Many economists like myself believe Greenspan's "too low for too long" 2001-2004 rate policy, plus his "let markets regulate themselves" philosophy, helped fuel subprime and other market excesses leading to the great financial crisis.

Current Chair Powell also kept rates too low for too long despite record, 2020-2021 post-pandemic money supply growth, fueling the worst inflation in 40 years. With his ambitious vice chair angling for his job, Powell, eager to please newly elected President Biden, infamously dismissed "transitory" inflation and was reappointed in November 2021.

Powell finally raised rates in March 2022, but the inflation genie, still haunting us today, was out of the bottle. President Trump, who first appointed fellow Republican Powell, is trying to oust him and effectively seize control of the Fed to slash rates. Powell is resisting, hoping to salvage his transitory legacy by achieving his 2% inflation goal before his term as chair ends next May.

Trump cannot be reelected but believes low rates for longer will cement his MAGA legacy. Powell set the political stage for the Fed's third death, but Trump's unprecedented political pressure resulted in my 75/25 Trump/Powell blame.

If the Fed cat has nine lives, three are gone at the hands of six Republicans in 50 years — three presidents and three Fed chairs — equally guilty on average.

Presidents must respect Fed independence, but Fed chairs must practice what they preach.

The best path to restore independence over the next 50 years is my recommendation to relocate the Fed to New York, perhaps in a new Paul Volcker Building, to help insulate it from the D.C. swamp.

Also, Senate Fed confirmations should require a two-thirds rather than simple majority vote. 

Finally, the Fed's unbridled discretion, including the arbitrary 2% inflation target, should be limited or replaced with an objective monetary rule to restrain even the most politicized chair.