By keeping commodity prices stable, we would have a stable and strong dollar. Only in the event of an economic emergency – declared by Congress and the President – should the Fed deviate from this rule.
Texas Insider Report: AUSTIN, Texas – Washington and Wall Street are beside themselves with excitement over Trump’s comment yesterday on the US Federal Reserve’s interest rate decision: “I think the President should at least have a say in this, yes, I do.”
While we believe in the Fed’s independence from political considerations, it is also dangerous that a bunch of lawyers and PhD economists in ivory towers can control the money supply and raise taxes (inflation is a tax) without being accountable to anyone – least of all the voters. To use the left’s favorite phrase, this is a danger to democracy.
It’s not like the Fed is a fountain of wisdom. It was Jerome Powell and his colleagues who enabled Biden and Harris’ spending spree and allowed inflation to rise to 9.1% in the summer of 2022. Sounds like they took their hands off the wheel.
It was the Fed that almost sent the economy into a tailspin at the end of 2017 by keeping interest rates far too high for far too long – and Trump had every reason to be angry about this mistake.
It was the economic geniuses at the Fed who kept interest rates too low for too long in 2006, 2007 and 2008, causing the biggest financial crisis since the Great Depression.
It was the Fed that allowed prices to nearly triple in the 1970s until Reagan and Volcker rescued us.
The 300 economists with PhDs in the Fed’s temple do not have a particularly brilliant track record.
Worst of all, current interest rate policy has spawned an entire industry of Fed watchers who make their living speculating about what the Fed will do next, creating uncertainty that is slowing growth.
Trump’s idea of giving the White House more say is not the solution either.
The solution is to strip the Fed of its exorbitant powers by requiring it to use a price rule when setting interest rates – and to stop worrying about things a central bank cannot control, such as unemployment, social injustice or climate change.
A sensible rule would be to use commodity prices as a benchmark. If we keep commodity prices stable, we would have a stable and strong dollar. Only in the event of an economic emergency – declared by Congress and the President – should the Fed deviate from this rule.
There must be a better way!
