Well, it definitely worked for Obama. I remember that Obama was watching his poll numbers go down right before the second term elections. Romney was ahead at that point. Then the Fed announced QE3 and stocks popped and went on a sustained tear. Obama got re-elected and I remember Romney was perplexed that he lost. I knew when QE3 was announced that it could very well be game over.
Anyway, I think the Fed is the communist cancer at the heart of our capitalist economy and it is now so powerful due to the warping of the economy it has done that it can now influence elections. So I agree with you. Trump is a smart guy with a winner's instinct. He knows damned well that he'd better keep the economy humming and the stock market high through Nov'20, if he wants to win.
The Fed is an unelected 4th branch of government and all of our Presidents going back to Nixon and before knew that they needed the Fed on their side to win elections. LBJ actually physically assaulted his Fed guy and told him what to do. So we'll see if Powell plays ball or goes in the other direction. A lot depends on what he does.
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The history of presidential Fed-bashing suggests it has not been a fruitful strategy
Greg Robb
 Everett Collection
President Lyndon Johnson and Vice President Hubert Humphrey at a barbecue victory celebration at the LBJ ranch in November 1964.(Editor’s note: This story was first published on Oct. 24.)
When talking about presidents using the Federal Reserve as a punching bag, it is always useful to start at the career of former Fed Chairman William McChesney Martin, who was nearly literally turned into a punching bag by President Lyndon Johnson.
The issue has come back to the fore with President Donald Trump’s barrage of criticism for the Federal Reserve and its chairman, Jerome Powell.
In late 1965, the Fed raised short-term rates, alarmed by signs of inflation after tax cuts and with the war in Vietnam ramping up.
Johnson summoned Martin to his ranch and proceeded to bully him in an attempt to get the Fed to reverse course.
Johnson “physically shoved [Martin] around the living room,” saying he didn’t care about the boys in Vietnam, said Sebastian Mallaby, the author of a new biography about former Fed Chairman Alan Greenspan.
Martin did not back down and the discount rate rose in early 1966 for the first time in five years.
Martin’s biographer, Robert Bremner, wrote that the Fed chairman “admitted later that he was shaken but determined to stick to his position and not to insult the president of the United States.”
Vincent Reinhart, a former top aide to Greenspan, thinks the LBJ episode shows public criticism of the Fed “is counterproductive.”
“They’re telling everyone they want to influence you. A public rebuke can’t be brooked by anyone who cares about credibility. You don’t want to be seen caving to political pressure,” Reinhart said.
Irwin Morris, a professor at the University of Maryland who has studied presidents and the Fed, agreed.
“The short answer is that there is relatively little evidence that the Fed responds to short-term presidential efforts to micromanage its monetary policy activities,” Morris said in an email.
The best it can do for a president is “shift blame” away from an administration, Morris said.
Reinhart said White House influence on the Fed has always been more significant when it was done “through the back channel.”
The Nixon tapes reveal that President Richard Nixon pressured Fed Chairman Arthur Burns to take easing actions ahead of the 1972 election. Although it remains controversial, many economists think Burns relented to the pressure.
Former Fed Chairman Paul Volcker has written a memoir to be released later this month that reveals President Reagan’s chief of staff James Baker ordered him not to raise interest rates ahead of the 1984 election. Volcker said he wasn’t planning to tighten but said he was “stunned.”
Reinhart said the discussions between Nixon and Burns captured on tape are “cringing.” But he said Burns thought there was room for stimulus anyway.
“Nixon was pushing on a partly open door,” he said.
The Trump White House is not a “back channel” administration, and everyone knew Trump would slam the Fed, Reinhart said.
“It is hard to say why there has been such a market reaction to this,” he said.
Trump continued to take aim at Powell on Tuesday. In a Wall Street Journal interview, the president said that Powell “almost looks like he’s happy raising interest rates.”
Earlier this month, Trump opened fire on the Fed in an interview on the Fox Business Network.
Trump called the Fed his “biggest threat” and said he wasn’t happy with Fed Chairman Jerome Powell, and suggested he also wasn’t happy with Fed Vice Chairman for Bank Supervision Randal Quarles and Fed Vice Chairman Richard Clarida, both of whom have voted for higher rates.
“I put [Powell] there and maybe it’s right, maybe it’s wrong, but I put him there. I put a couple of other people there I’m not happy with too,” Trump said.
Reinhart said it would matter if Trump looks at the three remaining open Fed seats and changes the nominations.
So far, Trump’s nominees have been “supportive” of Powell, Reinhart said.The president has the authority to fill seven of the eight Fed board positions.
Trump reached into the two Bush administrations for his first three Fed nominations, including Powell, Quarles and Clarida.
The Senate Banking Committee has approved two other of Trump’s Fed nominees: Michelle Bowman, a Kansas banking regulator, and Carnegie Mellon University economist Marvin Goodfriend, but they await a full Senate vote. The president last month nominated former Fed economist Nellie Liang to the board of governors. |
