No matter who wins this year’s presidential election, believers in monetary freedom will have their work cut out for them.
A newly-elected president Trump will quickly turn from making the Fed a scapegoat for his own campaigns’ tribulations to blaming it for his economic policy failures — starting with the equities market nose dive that’s likely to follow his surprise victory. But instead of continuing to rail against the Fed’s supposedly easy policy stance, you can bet that president-elect Trump would soon be blaming it for keeping money too tight.
In any event, a newly-elected Trump administration, through its unveiled hostility toward the Fed, could not fail to make that already “political” institution even more so, for the Fed knows very well that, if it wants to preserve its vaunted independence, it had better heed the administrations’ wishes. That’s what former Fed Chairman William McChesney Martin, who understood the true nature of the Fed’s independence better than anyone, meant when he explained that the Fed was independent, not “from,” but “within,” the government.
And if it doesn’t? Then at the very least we can expect President Trump to make life very unpleasant for Chair Yellen, in the hope of making her resign before the end of her term in January 2018. And even if she resists, we can expect to have a Trump-appointed Fed chair in place for at least half of his term. If you think that might be an improvement, then presumably you believe that Trump is a better judge of monetary policy experts than he is of economic policy experts generally.
In any event, it is another Clinton presidency that champions of monetary freedom are most likely to have to contend with. And what will that mean? Although the Fed would be bound to accommodate her own administration’s wishes to some extent, Clinton’s championing of Fed independence during her campaign would at least make it necessary for her administration to proceed relatively gingerly in trying to sway its conduct. But while the Clinton administration is unlikely to influence Fed policy directly, it can be expected to do so indirectly, in the name of “diversity.”