Chair Powell’s Speech Re: Fed Independence

In Fed Chair Powell’s speech this past Wednesday, he spoke about Fed monetary policy and also talked about the role of the Federal Reserve. In addition, he referred directly to the matter of the Fed’s independence and the necessity of maintaining that independence. In effect, he warned Congress about efforts to involve the Fed politically or to attempt modification of the independent monetary policy role of the Fed.

Below are selected excerpts from the speech which are followed in turn by my comments…

Powell: “We have held our policy rate at its current level since last July. As shown in the individual projections the FOMC released two weeks ago, my colleagues and I continue to believe that the policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.”

My comments: Throughout last year most people were expecting the Fed to “pivot” and cut interest rates as many as three times. Both Powell and other FOMC members indicated this was doable. Even so, the message was offset by the regular mention of “higher for longer” for interest rates. We are well into 2024 and Powell seems to be finally moving away from such aggressive specifics. The phrase “likely to be appropriate to begin lowering the policy rate at some point this year ” is not entirely comforting to those who are betting on a series for rate cuts and potential return to cheap (er) money and credit. Plentiful supply is still available but the cost has risen substantially and could continue to remain elevated. (see The Fed’s Changing Game Plan)

Powell: “Our decisions are not subject to reversal by other parts of the government, other than through legislation. This independence both enables and requires us to make our monetary policy decisions without consideration of short-term political matters. Such independence for a federal agency is and should be rare. In the case of the Fed, independence is essential to our ability to serve the public. The record shows that independent central banks deliver better economic outcomes.”

My comments: The Federal Reserve is NOT “part(s) of the government”. The Federal Reserve is a private organization, a banker’s bank, which exists and operates independently. Inception of the Federal Reserve was authorized by an act of Congress in 1913 and its origin is steeped in controversy (see Federal Reserve – Conspiracy Or Not?). The reason for the Fed’s independence has nothing to do its “ability to serve the public”. The Federal Reserve does not exist to serve the public. It exists to provide and maintain a system which allows banks to create and lend money in perpetuity, and collect the interest. As far as what “the record shows”, central banks, especially the Federal Reserve, have not delivered results that could by any stretch be called “better economic outcomes.”

Powell: “We will remain alert to the risk that there will be pressure to expand that (the Fed’s) role over time.”

My comments: Powell made the statement in reference to those who desire to influence Fed policy with respect to certain political and social issues including government fiscal policy, taxes, immigration, climate change, etc. I consider the statement to be a warning to Congress about efforts to penetrate the veil of secrecy surrounding the Federal Reserve. That concern was evident a few years ago when Judy Shelton was nominated to serve as a member of the  Federal Reserve Board of Governors. In my article Federal Reserve vs Judy Shelton And Gold, I said the following:

 “If someone with Ms. Shelton’s views were to be sitting on the Federal Reserve Board of Governors, that individual would have a platform to call attention to the facts at hand.  A more public recognition of those facts could change measurably the current perception of the Fed. In addition, it might also signal the possible end of the central bank.”

CONCLUSION 

After several decades of abnormally low interest rates and an abundance of cheap credit, the Federal Reserve was forced to pursue a return to more normal, higher interest rates in order to support the U.S. dollar and ward off the more obvious effects of its own inflation. The higher prices for consumer goods and services are the result of the dollar’s loss of purchasing power and are the effects of the inflation which the Fed creates by its continual expansion of the money (credit) supply.

Fed Chair Powell has purposely not been unequivocal about rate cuts for good reason. He is not that sure the Fed can do so safely yet, if ever. There is also the Fed independence issue to consider. Fed policy is not undertaken in the public interest. It is designed to support and maintain the structure of the financial and economic system that allows the Fed and its member banks to continue to create and lend money and collect interest.

Fed policy is self-serving; although at times, it may appear to be consistent with “public interest”. Above all, the Federal Reserve remains independent and will do whatever is necessary to protect that independence.