The chairmanship is comparable to the president
The US "Newsweek" pointed out in 1986 that the chairman of the Federal Reserve is the second most influential figure in the United States, second only to the president of the United States. In 1996, some media even stated that "it doesn't matter who becomes the president, as long as Alan Greenspan is the chairman of the Federal Reserve Bank." It can be seen that the chairman of the Fed can be more popular than the president.
The main tasks of the Federal Reserve are: to manage and regulate the banking industry, to implement monetary policy by buying and selling U.S. Treasury bonds, and to maintain payment system reciprocity. Although the Fed is a private bank, its responsibilities are no different from those of other central banks. The chairman of the Federal Reserve is equivalent to the "helm" of the private banks.
More than that, the Fed's decision on interest rates can influence the US election. The election is approaching. Let us see how the Fed affects the election. Will Trump dig his own grave this year and make allies an enemy?
Does the Fed favor the current party?
Many people will ask, is the chairman of the Federal Reserve a friend or an enemy to the president? Because sometimes the Fed seems to be on the side of the president, and sometimes it is against the president. Overall, the Fed's bias is in line with the government. Past studies have shown that every time the US government changes, the Fed’s policy will undergo some changes, and this change is consistent with the new president’s thinking. Especially during an economic crisis, the Fed often joins forces with the White House and the Treasury Department, with a very clear goal: to protect the economy. From a political point of view, this is very reasonable. Although the Federal Reserve is an independent agency, the chairman of the Federal Reserve is always named by the President of the United States.
If we trace the Fed's FOMC (Federal Open Market Committee) interest rate record from 2000 to the present, except in 2004, the Fed will not raise its target interest rate during the presidential election year, the entire year or the interest rate meeting before the election. One possibility is that the Fed is more inclined to help the current party in the White House. The reason is that the November meeting of the Fed in the recent election month tends to have a significant impact on politics. If the Fed raises interest rates, it will lead to a sell-off in the stock market; while interest rates remain unchanged or cuts will help capital flow into the stock market, stimulate the market, and help the current party win the presidential election.
For example, in the 2016 presidential election, Hillary Democrat and Republican Trump vie for the presidency. The then Fed Chairman Yellen (Yellen was nominated by the then President Democrat Obama) stated in the September FOMC that interest rates would remain unchanged, but they raised interest rates in December immediately after the election!
When the chairman of the Fed becomes the opponent of the president...
An economic analyst who once worked at the Federal Reserve once shared that he often read the news and wrote that “the White House is putting pressure on the Federal Reserve”. However, he consciously strays from politics in his work and feels that FOMC’s decision-making is difficult to be influenced by partisan forces. One day he asked his immediate boss, the vice chairman of the Federal Reserve branch, "What specific mechanism is there to allow politics to influence the Federal Reserve?" The other party responded that even though the Fed’s decision-making process is based on one person, one vote, the agenda of each FOMC meeting, that is, what to discuss and what policy to vote on, is determined by the chairman of the Fed. Therefore, the chairman of the Federal Reserve appointed by the president will naturally favor the White House.
But not all Fed chairmen are obedient to the president.
Taking the 2012 US election as an example, Republican candidate Mitt Romney lashed out at the Fed’s policies over the past few years and said that after he was elected, he would choose a different economist to replace then chairman Bernanke. A few days later, Bernanke presided over the FOMC meeting, and proposed and passed the third round of quantitative easing policy, namely QE3, a policy very popular with the market. After the meeting, Romney's opponent, Obama's support increased significantly. Bernanke chose to put forward QE3 "assist" at a delicate point in time. It is really intriguing how much political and economic considerations are.
Trump's opponent: Powell
The recent cases must be the current Fed Chairman Powell and Trump. As early as December 2018, US President Trump continued to pressure the Fed to stop raising interest rates, but the Fed raised interest rates to 2.25%-2.5%. Since the interest rate hike, Trump has criticized Powell for more than a year. Not to be outdone, Powell has repeatedly emphasized that the independence of the Fed is not influenced by politics. The deadlock between the two did not change until the Fed cut interest rates to nearly zero during the epidemic.
Why did Powell "snap the tune" with Trump? Chen Fengying, a researcher at the China Institute of Modern International Relations, said that this firstly stems from the two different policy concepts. Trump has always emphasized that his economic policies have promoted the development of the U.S. economy. He hopes that the economic performance of the stock market, bond market, and real estate market will continue to perform well, and interest rate hikes will be detrimental to the development of these markets; but for the Fed, the overall macroeconomic situation will promote the economy. Balanced development is the primary goal. At that time,
Powell believed that the U.S. economy was already ideal and there was a need to raise interest rates to balance excessive development.
As for the fact that the two people's ideas can be aligned recently, it is entirely due to the epidemic. Under the epidemic, the Fed's zero interest rate is beneficial to the stocks, real estate and other markets, and promotes economic development, while the economic improvement will also help Trump's re-election as the next president. Trump should be grateful for the epidemic, otherwise Powell may become his "rival" during the election.
As for whether the chairman of the Federal Reserve is a helper or opponent of the president, it depends very much on whether the two policy concepts are consistent and the economic environment at the time. If you refer to the record of interest rate negotiations in the past two decades, during periods of economic turmoil such as 2004,
2008, and 2020 this year, the Fed will do what it should do by raising and lowering interest rates to regulate the economy. The Fed’s decision remains focused on the overall situation. I will not use "helpers" or "adversaries" to oppose the two. The two are more like a game relationship, sometimes facing each other and sometimes in harmony, depending on the current situation, what kind of president and what kind of Fed chairman.
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