The showdown we all knew was coming finally reached a boiling point this week via news on Sunday night that the Department of Justice is threatening a criminal indictment against Federal Reserve Chairman Jerome Powell (who is set to step down as Fed Chairman in May) over his testimony about the central bank’s spending on controversial building renovations. Powell – looking highly beleaguered, potentially due to the loss of the new building’s planned rooftop beehives – released his version of a hostage video over the weekend wherein he argued the threat was simply the White House’s retaliation for the central bank’s refusal to accommodate President Trump’s interest rate demands. In the video, the Chairman suggested this constitutes an attack on the hallowed principle of Fed Independence, and that he will continue to defend the central bank’s autonomy in setting monetary policy going forward. We understand Powell’s frustration (and think he’s almost certainly right in his assessment of the administration’s intentions), but his video may have left some viewers wondering where this “independent” Fed has been lo these many decades? Where was it when the smartest guys in the room blew up their balance sheets because housing prices didn’t go up forever? Where was it in spring 2020 when it used its “infinite cash” to accommodate an unprecedented shutdown of the economy (then added trillions in additional liquidity just for good measure for two full years thereafter)? When it chose to cut rates by 50bps for no clear reason the month before a general election? Or how about every time it stepped in to quiet down a squirrely MOVE Index over the past 20 years?

Strike Founder Jack Mallers said it better than we can, but the reality is that the Fed has never been functionally independent in the modern era, and the organization’s choices (across many Presidential administrations and Fed Chairs) have consistently made that reality very plain. But let’s just take the argument at face value and say that until this unique and unprecedented encroachment by a blowhard wannabe Caesar, the Fed has indeed operated independently – is that actually any more flattering? Under the rein of this supposedly independent Fed, housing prices have dramatically outpaced wage gains, disproportionately hurting the middle class and the country’s younger generations. Based on official statistics, this Independent Fed has presided over the dollar losing ~28% and ~85% of its purchasing power over the last 10 and 50 years, respectively (and when compared to more objective markers like the price of gold and scarce assets, the record is even worse). During this Independent Fed era, the percentage of Americans living paycheck to paycheck has ballooned to as high as 78%, and so-called deaths of despair statistics look like charts from the late-era Soviet Union. We won’t comment on the wisdom (or lack thereof) of the President’s tactics, but if this is really what “Fed Independence” looks like, perhaps it’s time to consider an alternative path – preferably one where monetary policy is not set at the whim of a few central planners (in either the Eccles Building or the White House).

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