Phil Gramm and Jeb Hensarling explore the president’s authority to remove members of the Federal Reserve’s governing board.
The Fed is independent only in its conduct of narrowly defined monetary policy. When the Federal Reserve Board became one of the nation’s most vocal supporters of massive federal spending during and after the pandemic, it was operating outside its remit. That was also true when the Fed allowed itself to get caught up in climate politics and created internal climate committees. It also jumped on the DEI bandwagon: It sponsored a diversity conference and redefined its maximum employment mandate to be “a broad and inclusive goal.”
By involving itself in the political process, the Fed undercut the argument that it should be independent of that political process. Political independence, like virtue, is hard to reclaim once lost.
Despite the Fed’s failings, we continue to support its independence in conducting monetary policy and oppose the president’s attacks on it. We don’t take this stance because we support the actions of the current board but because those principles hold true regardless of who holds office at the Fed.
In 2017 we both urged President Trump to appoint as chairman John Taylor of Stanford’s Hoover Institution. Jerome Powell’s monetary record is mixed. He deserves credit for bringing inflation down from its 40-year high and, at least so far, reducing the Fed’s balance sheet without disrupting economic activity. On the other hand, he helped cause that inflation when he refused to respond to rising prices based on the argument that the inflation was the result of a supply shortfall and therefore transitory. That argument wasn’t credible given that the federal government was spending more in two years than it had ever spent in three and the Fed during the pandemic was expanding the money supply faster than in any other year since World War II ended. But again, the issue isn’t Mr. Powell’s record—it’s monetary-policy independence.
