What Trump and Powell’s Tiff Shows About the Core of the Fed
Trump has repeatedly pressured Powell to lower interest rates, thinking that a spiral of Keynesian growth can undo the damage he has wrought with tariffs and one of the most hands on governments economically in recent memory. Let alone the theoretical weakness of Trump’s stands, he is viewing the Fed in an unprecedented yet still partially realistic way. His belief that he can manipulate the Fed is one that many other presidents have had without spelling it out publicly. Regardless of Trump and Powell’s respective beliefs, their fight brings into question the institutional structure behind the Fed and the reasons for the Fed’s existence. Trump and Powell’s argument reveals the vulnerable fantasy that the Fed is truly independent. Their argument also clearly demonstrates why fiat currency is a servant of those who make it. Finally, their argument shows the negative effects of letting government, inherently ruled by human ambition, into an area of life as central as money.
As poorly informed it is that Trump is pushing for artificially lower interest rates, it makes it simple to see that the Fed’s interest rate choices are merely value-based decisions informed by analytical economic concepts. Even if it wasn’t Trump, Powell still has an opinion that he ultimately gets to act upon. While Powell might not act according to Trump‘s bidding, any of the other members of the board of governors could easily have someone in power that influences them. Even if all of their motivations were 100% pure, it would still be impossible for them to agree, let alone fulfill their two goals of low unemployment and a stable money supply. Anyone who refers to the Fed as independent has a problem of definition. They would only be correct if they mean it’s independent from the most direct and daily control enforced by Congress. In every other sense, the Fed is no more independent than a nonprofit or typical business, but with a far more murky incentive structure. While the Fed governors are not given a direct financial incentive, their exit opportunities are directly determined by their votes within the Fed. Trump’s pressure upon Powell is just a very public example of the sort of pressure that Fed governors already face on a daily basis.
Trump and Powell’s disagreement clearly shows the core problem with fiat currency. With either Trump or Powell‘s agenda, all transactions using the dollar will be negatively affected by the subjective choices that both of these men make. Trump has an obvious short term goal of boosting economic growth through inflationary monetary policy, but Powell also would’ve created high inflation through stepping in in a time of recession, or trying to balance the market at any other time artificially. Both of these men would directly influence an incredible share of the world’s people by how responsible or irresponsible their choices were. As much as governments want to convince you that the currency is stable and independent, it will always serve the needs of those who control it. The human desire to grasp for more has not allowed government officials to be freed from it. In fact, some argue that governmental power even strengthens this desire, making fiat currency an even more risky proposition. Before the dollar can fully be trusted, we must also fully trust the character of our leaders. This effect is uniquely strong in our governmental system, because there are not the same checks and balances that exist in many other areas of the US government. The independence of the Fed is not free yet from any of the human factors that damage the rest of government, but it makes it even more independent to act upon whims.
While the Fed was put in place to create a solution to bank runs and monetary instability, Trump and Powell’s clash of ambition highlights why the government continually worsen situations where it was brought in to make a solution. Human ambition can never be separated from the altruistic goals that governments espouse when they create new programs. The entrance of the state into a new endeavor will only act purely and helpfully win the individuals who control the government share those same attributes. The direct manipulation of money is one of the most damaging areas of government control because of the massive amount of information that would be required to even understand the situation, and the impossible burden of acting upon that information effectively. When the Fed cannot even be trusted to be independent and motivationally pure, that challenge becomes far harder.
