Is Donald Trump’s Fed Criticism Just Bluster, or Will We See Reform?

President-elect Donald Trump has drawn criticism for launching a series of undisguised attacks on the Federal Reserve Bank of America, and its chairman, Janet Yellen. It’s unbecoming, critics say, for a politician to drag a stately, independent institution down in the mud, especially when it was designed to rise above the everyday considerations of politics. Trump has been critical of Yellen for failing to raise interest rates more quickly, and has accused her of using her post to try to aid Hillary Clinton in the election, a strategy which, if true, obviously failed to work.

The Fed is important, because it is responsible for controlling the money supply which, among other things, affects interest rates and inflation across the whole country. It has been argued by some, myself included, that the Fed’s overly loose monetary policy has prolonged the effects of the Great Recession, by distorting the monetary signals on which investors make their decisions. Trump’s attack is a little more blunt than that kind of analysis, but he is not wrong to go after the Fed. In fact, he should probably be doing more.

Of course, the idea that the Fed has ever really been independent of politics is a ridiculous fiction, designed to insulate the Board of Governors from accountability for their decisions. The president gets to appoint the Fed chairman, and that decision will always be motivated by political as well as policy concerns. Furthermore, it’s ridiculous to assume that the members of Board are somehow immune to their own political biases. Just as the Supreme Court, an institution supposedly isolated from politics, takes into account which way the political winds are blowing, so do the decision makers at the Fed. Donald Trump recognizes that. Although the precise nature of his attacks may be overblown and hyperbolic, there is no doubt that the Federal Reserve plays a key role in what the nation’s economy looks like, and that has an effect on electoral politics.

Where Trump would do better, however, is to focus his attacks on monetary policy itself. While I don’t expect him to be the heir of Ron Paul, whose trenchant criticisms of the Federal Reserve brought monetary policy to the forefront of the national debate in a way unseen since the days of bimetallism, Trump is right that keeping interest rates artificially low is bad policy, and should be stopped. He may lack the theoretical rigor of the Austrian school to explain how low interest rates create faulty investments, setting up a monetary bubble that must sooner or later burst, or how quantitative easing devalues the currency and hits all Americans with the hidden tax of inflation, but he has business acumen at least to know that we can’t solve our problems by printing more money, forever and ever without limit.

Janet Yellen should be worried. Donald Trump is not going to end the Fed, as Ron Paul promised to do, but with any luck, he will oust her and replace her with someone less committed to monetary expansionism. It’s true that the chairman doesn’t unilaterally make policy decisions, but a strong voice calling for a more responsible approach could at the very least be influential in setting the tone for the bank. And who knows? We may even get that full Federal Reserve audit that Rand Paul introduces every year.

It may fly in the face of tradition for a president-elect to so vocally go after a “independent” agency, but if so it’s a tradition that badly needs rethinking. Monetary policy is too important to be left to bankers, much less ones who are unaccountable to the public. (For more from the author of “Is Donald Trump’s Fed Criticism Just Bluster, or Will We See Reform?” please click HERE)

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