Two days after Donald Trump became the first American since Grover Cleveland to win non-consecutive presidential elections, the Federal Reserve announced it would cut interest rates by a quarter of a percentage point. Following the announcement, Federal Reserve Chairman Jerome Powell held a press conference and said he would not accept the president's request to resign before his term ends in May 2026.
Powell argued that the president does not have the legal authority to fire the Fed chair. Therefore, if President Trump were to say to Chairman Powell, “You're fired,'' Powell could file a lawsuit asking the court to review President Trump's actions.
President Trump and Chairman Powell are at odds over Trump's desire to require the Federal Reserve to consult with the president before changing interest rates or taking other significant actions. Mr. Powell is likely to do everything in his power to persuade Congress to veto any legislation that would give the president some official role in monetary policy decisions. As it turns out, Chairman Powell is very protective of the Fed's autonomy, even though nothing in the Fed audit bill gives the President or Congress new powers over the Fed. They oppose Fed audits on the grounds that they could threaten their financial institutions. Management of monetary policy.
Requiring the Fed to consult with the president on monetary policy would likely lead to higher prices and a devaluation of the dollar. Politicians usually like low interest rates because they associate them with economic growth. Politicians also want the Fed to keep interest rates low so the federal government can continue accumulating huge amounts of debt. Without a central bank that is ready, willing, and able to monetize the federal debt, there would be no welfare war state.
Despite claims by Chairman Powell and other central bank apologists, the Fed has never been free from political pressure. Long before Donald Trump started posting “mean tweets” about Jerome Powell, presidents were trying to influence the Federal Reserve. Requiring the Fed to consult with the president would at least make the president's efforts to influence monetary policy more open and transparent.
President Trump and other Fed critics, such as Sen. Elizabeth Warren of Massachusetts, believe they are better able than the Fed to determine the “right” interest rates. This ignores the fact that interest rates are the price of money and, like all prices, are formed by a variety of factors that are constantly changing. When the Fed manipulates interest rates, it distorts the signals sent to investors. As a result, economic booms and busts occur. The fiat currency system is also responsible for widening income inequality and reducing the purchasing power of the dollar, which lowers the standard of living for most Americans.
President Trump should try to eliminate the need for the Fed to keep interest rates low. He can do this by fighting for major spending cuts, starting with the military-industrial complex. He should push Congress to pass a Fed audit bill. Additionally, President Trump should support the legalization of all competing currencies. The next tax bill should include a provision exempting precious metals and cryptocurrencies from capital gains tax. The key to making America great again is making money free again.
Ron Paul is a former U.S. Congressman from Texas. This article originally appeared on the Ron Paul Institute for Peace and Prosperity and is reprinted here with permission.
