Leave the Fed Alone
In America and Europe, politicians of both the left and the right want greater control over central banks. The foundation of stable economies is under threat.
It was a classic, full-frontal Donald Trump attack. The Federal Reserve was openly playing politics, the Republican railed during the campaign. By keeping interest rates “artificially low,” Fed Chair Janet Yellen was abusing the power of the U.S. central bank in order to prop up the Obama administration. She should be “ashamed” of herself.
Just one more blast of standard right-wing demagoguery? American conservatives, after all, often love to bash the Fed. And plenty on the right openly question the wisdom of allowing the central bank a pivotal role in economic policy. But these days, they are not alone. What’s troubling is that the left, too, has taken up the cause. In their own words, the protesters “are fed up with the Fed.”
To be sure, their complaints are the very opposite of the conservatives’. The new Fed-haters worry that the bank will hike interest rates and choke off economic growth before its benefits are felt by ordinary Americans. Any such move must be resisted until wages rise and unemployment falls. Borrowing Yellen’s own phrase, they say “the Fed is there for everyone.” But the underlying message is alarmingly similar to Trump’s: The Fed needs fettering.
And it’s not just the Fed that’s in the line of fire. In the euro zone, calls by German politicians for the European Central Bank to start raising interest rates again, have reached a crescendo. Earlier this year, Finance Minister Wolfgang Schäuble launched an almost unprecedented public attack on the ECB for what he considers to be a destabilizing monetary policy. He even blamed ECB President Mario Draghi for the rise of Germany’s rightwing party, Alternative for Germany.
Such criticism is outright hypocrisy. The truth is that national governments across the EU have been more than happy to shuffle unwanted responsibility onto the ECB, forcing it to find temporary solutions to problems politicians would rather avoid. In particular, they have left the bank to sort out the consequences of Europe’s government debt crisis and shaky banking sector, albeit with inadequate means. Yet those same politicians now have the gall to accuse the bank of setting fiscal policy.
As yet, the political pressure on the ECB makes little difference. It’s hard to argue for radical change when the economy seems stable enough. Contrary to the prophets of doom, there is no sign of impending economic collapse or rampant inflation. But consider the long-term dangers; monetary