Is The Fed Really Independent? Should It Be?

You know how your little brother says he’s “independent,” but still needs mom to microwave his pizza? That’s kind of like how the Federal Reserve is "independent" from the President and Congress. It talks a big game, but behind the scenes it's doing the economic version of texting at 2 a.m. for help. But is that how it should be?

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Here are Five Fast Facts on the Fed's "independence:"

1. 💡 The Idea - The Fed is supposed to be an independent money wizard, but it actually acts more like the President's and Congress’s financial sidekick in a superhero movie.

2. 🤔 Seems Like A Trend - Multiple times in just the past few decades -- think the 1970s, 2008, and 2020 -- when the government makes drunken sailors look responsible by spending too much money, the Fed often swoops in to help by printing money like it’s confetti at a graduation party.

3. 🚨 Theoretically... - The Fed is supposed to use money policy to keep interest rates and inflation under control, but reality lags behind policy and sometimes they wait too long...kind of like hitting snooze on an actively blaring fire alarm.

4. 🙈 Shhhh, Don't Tell - Politicians of both parties secretly love a helpful Fed, especially when it keeps voters happy by handing out economic candy (aka low interest rates).

5. 👀 The Exception - Interestingly, while the Fed has played nicey-nice with Presidents and Congresses for years, this time they're not budging. Thus, the spat between Trump and Fed Chairman Powell. Powell has stubbornly refused to lower rates due to the Fed's "independence," so Trump has threatened to replace him before his term ends in 2026. Play ball or get off the field, buddy!

🔥Bottom line: The kicker on all this is that Powell is probably correct not to give Trump what he wants at the moment (though lower interest rates sure would be nice right about now, wouldn't they?!). But it also should not have given Biden what he wanted, Bush/Obama what they wanted, and Carter what he wanted, either. But they did, putting the lie to any notion of "independence" from the federal government, and setting a clear precedent that they should help Trump, too. On the one hand, if Trump were to replace Powell, it would probably cause markets to freak out, thus causing more economic damage than just leaving him alone. On the other hand, the Fed isn't at all accountable to the American people but Presidents and Congresses are, so having the Fed respond to duly elected representatives seems to put the power at least somewhat back into the hands of We The People, which is almost always a good thing. There's really no doubt about whether the Fed is independent or not; the real question is: should they be?

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