The Political Implications of the U.S. Federal Reserve System
The U.S. Federal Reserve System, also known as the Fed, is often lauded for its independence from political pressure. However, the question of whether it truly remains politically neutral has sparked considerable debate. This article explores the political implications of the Fed and its historical actions during different presidential administrations.
Claim of Political Neutrality
Many argue that the Federal Reserve board members are politically neutral. They maintain that these professionals, with numerous PhDs in Economics and backgrounds in academia and banking, are appointed for long terms and are independent of political influence. Their sole focus is to guide the money supply to prevent both recessions and inflation. However, a closer look at the Fed's actions reveals inconsistencies that challenge this claim of political neutrality.
Disagreement on Political Neutrality
Some believe that the Federal Reserve is political and conservative, though not as politically driven as the Supreme Court or other branches of government. During certain periods, such as the end of Jimmy Carter's and Bill Clinton's presidencies, the Fed's actions were seen as assisting Republican aims. The tenure of Alan Greenspan was even more controversial, characterized by some as insane financial policies.
Despite these perceived political leanings, the Fed generally stands firm against presidential influence. The responsibility of the Chairman of the Federal Reserve Board is to ensure that the Fed remains politically neutral and does not lose congressional support. The only known exception to this rule is the early 1970s, when the Fed's monetary policy was adjusted to support the re-election prospects of the President.
Historical Context and Action
Historically, the Federal Reserve’s actions have often been influenced by political motives. For instance, during the early 1970s, the Fed eased monetary policy to assist the President's re-election, making the Federal Reserve a creature of Congress.
The primary rule in politics is 'Take Revenge.' If the Fed assists an enemy today, it can expect political repercussions tomorrow. This principle is why the Fed maintains a political neutrality stance. Engaging in political matters could jeopardize its funding and support from Congress.
However, the Fed's actions have sometimes been viewed as politically motivated. In 2008, during Barack Obama's presidency, the Fed lowered interest rates, showing a political bias. In contrast, under the Trump administration, when the Fed raised interest rates eight times in 2017-2018, there was no justification for inflation, which some argue was a politically motivated decision to punish the electorate for their choice.
The Fed as a Plutocracy
There is an argument that the Federal Reserve is not a neutral entity but a plutocracy, ruled by wealthy global banking families who are not necessarily American citizens. Its neutrality is more a reflection of its stance against both major political parties rather than a commitment to full neutrality.
Some critics argue that the Fed can and does influence the economy based on political motives. In 2010, the Fed declared 'functional fiscal autonomy,' further distancing itself from direct political influence, but whether this truly prevents political bias remains debatable.
Conclusion
The debate over political neutrality of the Federal Reserve is ongoing. While the Fed maintains a stance of independence and neutrality, its actions have often been influenced by political considerations. The integrity of the Federal Reserve requires careful scrutiny to ensure it remains a true pillar of economic stability rather than a tool for political manipulation.
The key question remains: can the Federal Reserve truly remain politically neutral in an environment where taking political revenge is a common law?