Trump is pressuring the Fed to keep interest rates low. Nixon did it -- and damaged the economy
Last edited Sun Jul 29, 2018, 05:33 PM - Edit history (1)
WASHINGTON - The Federal Reserve was raising interest rates and the president wasn't happy about it.
No, it wasn't President Donald Trump, who took the unusual step of publicly criticizing the independent central bank last week. It was another volatile president - Richard Nixon - and the experience presents a cautionary tale.
The U.S. had just emerged from a nearly yearlong recession in 1971 after the independent central bank slashed its key short-term interest rate by more than half.
Fed Chairman Arthur Burns was worried that continuing the low rates and expansionary monetary policy with the economy growing again could lead to what he called "awful problems" down the line.
Nixon was more worried about his re-election in 1972.
"We've really got to think of goosing it ... late summer and fall of this year and next year," Nixon told Burns on March 19, 1971, according to White House audio recordings released years later.
It was one of several conversations with Burns by Nixon and his top deputies that succeeded in getting the Fed chairman to reverse the interest rate hikes in the fall of 1971 - only to lead to a decade of economic damage from high inflation.
It has become a case study for the dangers of jawboning the Fed on interest rates.
https://www.msn.com/en-us/money/markets/trump-is-pressuring-the-fed-to-keep-interest-rates-low-nixon-actually-did-it--and-damaged-the-economy/ar-BBL9rGI?li=BBnbfcN
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