Targeting Fed’s independence puts economy at grave risk

For the first time since December, the Federal Reserve’s Open Market Committee, the 12-member body within the central bank that sets monetary policy, lowered its short-term interest rate Wednesday to about 4.1%, down 0.25 percentage points.

Fed officials shifted from a focus on inflation, still above its 2% target, to a softer job market. And they signaled that rates will likely be cut twice more this year.

As with so much else, we’re living through some of the most unparalleled challenges to the republic since the worst of the Great Depression and the Civil War — yet even then, Abraham Lincoln, Herbert Hoover and Franklin Roosevelt abided by the Constitution.

President Donald Trump, who continues to operate largely without constitutional checks and balances, wants to take control of the Federal Reserve and its dominant seven-member board of governors. He intends to appoint a majority of loyalists. Controlling one more seat would allow him to eclipse any dissent to his desire for lower interest rates.

The world’s most influential central bank and lender of last resort was intended to be independent of the White House except for the president’s ability to nominate chairs and board members, subject to confirmation by the Senate.

Yet, last month the president said, “We’ll have a majority very shortly … and that’ll be great,” referring to his intention to gain unmatched power over the Fed. 

For months, he’s been angry with Fed Chair Jerome Powell, a former lawyer and investment banker who he appointed in his first term, ousting the eminent economist Janet Yellen, who went on to serve as Treasury secretary in the Biden administration.

On Monday, the Senate barely confirmed the president’s decision to have Stephen Miran join the Fed’s board.

He was formerly head of the White House Council of Economic Advisers and backer of tariffs, agreeing — despite the consensus of most mainstream economists — that they don’t cause inflation.

Miran, an administration loyalist who holds a doctorate in economics from Harvard and failed as an investment banker, echoes the president’s complaint that the Fed is undermining his agenda. He voted against the rate cut, seeking a deeper reduction.

For decades, the Fed has operated under a mandate to balance maximum employment and stable prices.

The Wall Street Journal recently reported that Miran said: “I’m never going to claim to be the smartest person in the room. … I’m happy to be the most annoying person in the room.” 

While Miran has backtracked from the statement, he’s well-known for advancing the so-called Mar-a-Lago Accord, policies intended to force other nations to strengthen their currencies to increase U.S. manufacturing. (In theory, a lower dollar makes domestic goods, such as Boeing airliners, more affordable overseas but negatively affects average Americans.)

Miran also implied that the president should enjoy greater control than in the past over who serves on the Fed’s policy committee, including the ability to “fire officials at will,” according to the Wall Street Journal exclusive.

Meanwhile, the president keeps pushing to remove Fed board member Lisa Cook, the first Black woman to serve on the central bank’s board. So far, his effort has been thwarted by a federal appeals court; yet the president enjoys a far-right supermajority on the Supreme Court, so he might still get his way.

This comes at a momentous time for the economy. Inflation is rising, largely because of the administration’s tariffs and anti-immigrant policies, the latter especially hurting agriculture, with growers needing workers. In Washington, agriculture is a $14 billion sector and a major exporter, as well as a supplier of a variety of foods to the nation.

Meanwhile, the job market is unsteady — with the June-to-August increase marking the slowest three-month pace since the onset of the pandemic.

For the Seattle-Tacoma-Bellevue metropolitan area, the unemployment rate was 4.3% as of July, the most recent month for which reliable data is available. It’s up from January’s 4% but is still what economists consider “full employment.”

So, the nation isn’t in a downturn yet, but the president’s attempted coup of the Fed and misguided policies are placing the economy at grave risk.

For example, Mark Zandi, the well-respected economist at Moody’s, posted on X this month that the nation was on “the precipice of a recession.” 

His post continued to worry about “an uncomfortably high 48% probability that the U.S. economy will suffer a recession in the next 12 months.”

In addition, he noted that while the risk is less than 50%, “historically, the probability has never gotten this high” without a recession ensuing.

The president’s attempt to control the Fed is the first since Congress established it in 1913. 

During the worst months of the severe recession of the early 1980s and the Great Recession, neither Presidents Ronald Reagan nor Barack Obama attempted to interfere with the central bank’s dependence.

In the first instance, then-Fed chair Paul Volcker pushed through a painful but necessary breaking of runaway inflation — ushering in what economists and historians call the “great moderation,” decades of relatively low inflation and modest downturns.

In the second case, then-Fed chair Ben Bernanke, one of the most respected economists ever to lead the central bank, and his colleagues steered monetary policy in a way that prevented a serious contraction from becoming a worldwide depression.

Before the Fed, the nation was largely dependent on private and foreign capital after President Andrew Jackson and his congressional majority abolished the second Bank of the United States, a second central bank, in 1834.

After stretches of major economic instability known as the “panics” of the 1890s — which hurt my family in Phoenix, then capital of the Arizona Territory, and millions of other Americans — the nation required the intervention of J.P. Morgan and other top financiers to rescue the economy. The same happened during the “panic” of 1907.

Before the 1930s, “panic” was a synonym for economic depression.

As a result, the Federal Reserve Act of 1913 established the Federal Reserve System as the central bank of nation, charged with establishing a stable monetary and financial system.

To be sure, the central bank blundered after the 1929 stock market crash, raising rates and helping to turn a severe contraction into the Great Depression.

But, in general, the Fed has provided an indispensable bulwark of the world economy.

Now, in a time of a sinister administration, the nation is in unchartered territory.