duties in the wake of the 2008 financial cri-
sis effectively constitutes a third mandate.)
As the Fed’s mandate has expanded into
the macroeconomic realm, it has necessar-
ily been tied increasingly to elected offi-
cials. Add in the unique characteristics of
monetary policy—that unlike fiscal policy,
it can be implemented effectively imme-
diately, affects the economy generally and
requires neither deal making within or the
approval of the Legislative Branch—and
the litany of incentives for exerting politi-
cal influence upon Fed officials is clear.
Monetary Versus Fiscal Policy
The inclination to influence the Fed has
essentially everything to do with the sepa-
rate and distinct attributes of the federal
government’s two means of impacting
the domestic economy: fiscal policy and
monetary policy.
Fiscal policy targets spending levels
(consumption) via taxation and stimu-
lus measures; it is enacted by Congress.
Monetary policy, enacted by the Fed,
involves influencing the money supply
and interest rates. Not only is the mon-
etary policy route faster-acting, cheaper
(no debt is incurred) and arguably more
powerful (money “touches” everything),
it additionally doesn’t require the sort
of horse-trading and lengthy negotiation
that legislative efforts take. Monetary pol-
icy measures can be implemented in a very
short amount of time (hours) and via the
decisions of a mere handful of top people.
A Brief History of Jawboning
There’s little doubt that in an age of social
media, it has become easier to rally public
opinion in favor of Fed action. But Presi-
dents attempting to influence the Fed did
not start (and probably will not end) with
the current Chief Executive. With specific
reference to direct, public jawboning of
the type which the current President has
been taken to task for, a partial list of pre-
vious examples bear listing.
Harry S. Truman, in early 1951, sum-
moned the FOMC to a meeting at the
White House in which he insisted that
they continue to support Treasury bond
prices.
Lyndon Johnson, in his 1967 State of
the Union address, made the following
statement:
“Monetary conditions are also easing.
Most interest rates have retreated from
their earlier peaks. More money now
seems to be available. Given the coop-
eration of the Federal Reserve System,
which I so earnestly seek, I am confi-
dent that this movement can continue.
I pledge the American people that I will
do everything in a President’s power to
lower interest rates and to ease money
in this country…toward easier credit
and toward lower interest rates.”
The Nixon tapes hold copious evidence
of direct and indirect attempts to influ-
ence the Fed. Publicly, Richard Nixon had
this to say upon appointing Arthur Burns
to the Fed Chairman position in 1970:
“Ladies and gentlemen, as all of you
know, the Federal Reserve is indepen-
dent, certainly independent of the Pres-
ident, although the Congress would
suggest that it is not independent of
the Congress. I respect that indepen-
dence. On the other hand, I do have the
opportunity as President to convey my
views to the Chairman of the Federal
Reserve in meetings with … the Secre-
tary of the Treasury and the Chairman
of the Council of Economic Advisers …
I have some very strong views on some
of these economic matters and I can
assure you that I will convey them…I
respect his independence. However, I
hope that independently he will con-
clude that my views are the ones that
should be followed.”
And in a later phone call between Nixon
and Burns (via transcript):
Nixon: “Arthur, [garbled]. You’re
independent! [Burns laughs]. Inde-
pendent! You get it up. I don’t want
any more nasty letters from people
about it. OK?”
Burns: “That [no more nasty letters], I
can’t guarantee.”
Later,
Nixon: “The whole point is, get it [the
money supply] up. You know, fair
enough? Kick it!”
With skyrocketing inflation in the late
1970s, the Fed under Chairman Paul Vol-
cker began a grueling interest rate hiking
campaign. Knowing that the continua-
tion of continually higher rates would be
politically damaging with an election a few
months away—and under pressure from
both certain sectors of Congress and orga-
nized labor—Jimmy Carter announced
the following alternative, a restraint on the
growth of credit, during a televised broad-
cast in 1980, despite the Fed’s opposition:
Left: President Barack Obama announces Janet
Yellen as his choice to chair the Federal Reserve,
October 9, 2013. (Credit: Win McNamee)
Right: President Ronald Reagan announces
that Alan Greenspan will replace Paul Volcker as
Federal Reserve Chairman at a press conference
on June 1, 1987, as Treasury Secretary James A.
Baker III looks on. (Credit: Diana Walker)
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