The White House and the Federal Bank… Will skirmishes return?

The White House, as well as the markets and millions of Americans, were not pleased with the testimony of Federal Reserve Chairman (US Central Bank) Jerome Powell, before Congress, on Tuesday, which prompted a White House official to comment, for the first time since the election of President Joe Biden, on a matter related to The country’s monetary policy, except for expressions of praise and support.

Commenting on what Powell indicated about the possibility that recent indicators would push him to raise interest rates further than previous estimates, after the Federal Reserve’s recent expectations regarding falling inflation rates failed, the official, who declined to be named, stressed the need to wait for more data before taking any action. A new step to curb inflation.

The official told Reuters, on Wednesday, that “it is unacceptable to rely on one-month indicators in making a decision like that, and everyone must be given a chance to catch their breath,” stressing at the same time the independence of the Federal Reserve’s decisions.

The White House relies on Powell, who is a moderate Republican, according to what the media describes, to direct the economy towards a safe decline, by reducing the inflation rate, without entering the economy into a recession, while Biden prepares for a second presidential election campaign that focuses on job creation and new investments. It can come in a recession.

Democratic systems in general, and the American system in particular, are characterized by the upholding of the principle of separation of powers and specialization of positions, but the United States has witnessed before, differences in visions between the White House and the Federal Bank, perhaps more dramatic than this dispute.

During the reign of former US President Donald Trump, the man was fed up with the “iron woman” Janet Yellen, then chair of the Federal Reserve, to leave her job with a joint agreement between them, which was not announced, to become the current Treasury Secretary.

And after Yellen, Trump pressured on more than one occasion, sometimes publicly, and sometimes behind closed doors, to push the Federal Reserve to cut interest rates, hoping to preserve the economic recovery, and to push stock indices higher, and both things were a mainstay of the campaign. Re-election for office.

But Powell, who took over the task from Yellen, did not heed Trump’s pressure and continued to implement his policies, which prompted Trump to criticize him publicly, several times, before the bank’s president was forced to cut interest rates clearly, bringing them closer to zero percent, but under pressure to combat negative effects. COVID-19 pandemic on the US economy.

And before Trump, Democratic President Barack Obama appointed Yellen as chair of the Federal Reserve, to succeed Ben Bernanke, who was his deputy, to become the first chairwoman of this ancient bank since its founding in 1914. Things went smoothly, on the one hand because of the intellectual and partisan harmony between them, and on the other hand because of the economic recovery In the wake of the US economy’s exit from the global financial crisis.

And the quarrels beganAfter Trump arrived at the White House in 2017, with Yellen’s reservations about the US president’s interventions in monetary policy, or his pressure to raise the interest rate more than once, Trump accused her ofIn collusion on behalf of former President Barack Obama.

Observers believe that the Federal Reserve, led by Janet Yellen, was independent, but wise at the same time, as it responded when things were required, and raised interest rates in March 2017, in a move that was reinforced by steady economic growth, strong job growth, and confidence that inflation It rises towards the Fed’s target level.

Despite the federal tradition that imposed the appointment of most of the bank’s presidents for two terms as a sign of its independence, Yellen left her post after one term, and her latent battle with Trump turned to the media, during an economically and politically turbulent period, before his departure from the White House in January 2021.

Taking steps back, we find that the former president of the Bank, Ben Bernanke, was not fortunate enough for anyone who came after him, whether in his relationship with the White House or in his dealings with economic crises, as he took over the reins of affairs at the end of 2005 while the country was still suffering from the economic repercussions of the Iraq war.

In 2007, Bernanke collided with banks and imposed emergency loans on them, fearing their collapse. Before the country plunged into the global financial crisis, financial institutions were most affected by it, due to mortgage loans and related derivatives.

The real crisis with the White House came in September 2013, when Obama announced to the media, in a statement considered unwise at the time, that the economy does not allow the Federal Bank to reduce its bond purchases, which led to confusion in the markets, and incurred huge losses.

But the most famous crisis was during the reign of former President Richard Nixon in the early 1970s, when the United States suffered at that time from high rates of inflation, but it was accompanied by a clear slowdown in economic activity, which prompted Nixon to put pressure on the Federal Bank to keep interest rates low and stimulate economic growth.

Then-Fed Chairman Arthur Burns saw that keeping interest rates low would only exacerbate inflation, and he was reluctant to comply with Nixon’s demands.

In an attempt to force the Federal Reserve to comply with his wishes, Nixon began to bully and intimidate Burns, going so far as to call him home in the middle of the night to demand lower interest rates, and publicly criticizing him in many forums, accusing him of being “too restrictive, and holding back economic growth.” “.

In the end, the Fed gave in to Nixon’s demands and kept interest rates low, which boosted the economy in the short term, but also exacerbated inflation in the long term, and many economists believe that the Fed’s submission to political pressure was a major factor in the Fed’s vulnerability. The country experienced the longest period of high inflation in its history, which did not end until 1983.