Nice to see Reason run actual monetary policy thinking. Nice-nice-nice.
The main job of a central bank is to maintain the purchasing power of the currency, yet the U.S. dollar has depreciated about 97 percent since the Federal Reserve was created in 1913. The Fed has done a profoundly bad job, especially in recent history.
Ok, right off the bat: I find this a pretty stupid take (and Bitcoiners throw it around a lot too). Wanna quibble? Here's my Daily Economy piece on it: "Who Bears the Burden of Dollars' Falling Purchasing Power?"
https://thedailyeconomy.org/article/who-bears-the-burden-of-dollars-falling-purchasing-power/
You profoundly cannot make CPI comparisons over that sort of time frame ("no amount of money in 1913 could have bought an iPhone, comfortable transatlantic flights, indoor air conditioning or penicillin"). There basically are no victims of this horrific loss: Nobody, I like to say, cares about the dollar. From my piece:
The implication of the 96% statements is one of a huge loss – that governments have skimmed hard-working regular people of their just dues. Cash holdings surreptitiously declining in value must have harmed someone. Intrigued by the statement, I wondered where I could find the victim of this alleged swindle: where is the person who held dollar bills over a century and, stoically, faced this loss? Right off the bat, there’s a problem. As notes became serious collectibles beginning in the 1960s, whoever was lucky enough to hold on to their 1913 notes today would be holding some quite valuable items.
The confusion doesn't help when authors say things that sounds like they have to do with money and monetary policy and their relation to real goods and services ("the" dollar)—and then completely switch to talk about FX, and what "the" dollar buys in terms of foreign "the" pounds/euros/yens/kronas
If Trump is successful, expect a return of high inflation in the second half of his term, and the dollar, which is extraordinarily strong right now, will weaken significantly. If interest rates are held below equilibrium, housing prices will appreciate even faster than they have in the past four years, which will benefit current homeowners at the expense of potential homeowners.
Anyway, back to Dillian's article
Having 19 unelected bureaucrats in charge of the most important price in the economy—the price of money—is a bad idea. If the Federal Reserve were abolished tomorrow, the markets would do a serviceable job of determining the path of short-term interest rates and allocating capital efficiently.
When politicians have influence over the central bank, invariably, there is pressure to lower interest rates because it speeds up the economy and reduces unemployment—things that politicians like.
YESSIR!
There's some don't-reason-from-a-price-change and don't-confuse-low-with-loose type things in there too, unfortunately. (Topics for another time.)
Otherwise:
Powell is on his second term as Fed chairman, expiring in 2026. Powell has stated he will not resign if asked to by Trump. While Trump has said he will not move to replace Powell, it seems unlikely he will wait until 2026 to try to make changes at the Federal Reserve, though it's unclear what he might try. The danger is that Trump appoints a factotum to be Fed chairman in 2026, and subsequently, the Fed as an institution will do his bidding.
I have some thoughts (#758714).
P.S.: Joe Salerno at the Mises Institute used to joke (half-jokingly?!) say that it would be great if the President or Congress ran the Fed: the errors would be enormous and the stupidez obvious to everyone.
Thus, maybe everyone would more quickly favor abolishing the central bank rather than venerate the very serious man (in pointy hats? #747181).