“Live free or die,” said General John Stark, a hero of the Revolutionary War, whose words live on as the slogan of the State of New Hampshire. It was the rallying cry of the American Colonists in the Revolutionary War as they shattered the shackles of King George and birthed a free and independent nation.

Today, Americans face another threat to their freedom: the freedom to live within independent economic guard rails whose only job is to maintain price and economic stability, not political power. Nonetheless, rumblings have been heard from President-elect Trump that the U.S. Federal Reserve has too much power and needs to be controlled by the Executive Branch of government. 

For one, this is not a novel idea. In the memoirs of William McChesney Martin, the Fed Chairman under President Lyndon Johnson, he said he suffered a physical beating defending Fed independence. According to Martin’s published letters, he told of the time when he continued to raise interest rates in the height of the Vietnam War. This infuriated the 6-5, 250 lb. Johnson to the point where he stormed over to Martin’s office and began to physically beat the diminutive Fed Chairman. With each punch, Johnson allegedly hollered “Boys Dyin” in Vietnam and Bill Martin don’t care! Boys Dyin’ in Vietnam and Bill Martin Don’t care”. 

Staffers intervened and pulled Johnson off of Martin, yet despite his wounds, Martin did not budge. The Fed continued to fight inflation caused by the scarcity of goods and labor and maintained employment as best it could in a wartime economy. He kept rates higher than the administration wanted, but he also kept inflation at bay until another President ultimately ruined the work.

In 1971, President Richard Nixon took economic matters into his own hands, overrode Fed policy, and declared wage and price controls in the United States. For a short time, they appeared to bring price stability. Still, they ultimately caused the stock market to plunge nearly 50 percent in the 1974 -1974 crash called by former Fed Chairman Ben Bernanke in his book”  Essays of the Great Depression,” a financial collapse second only to the Great Contraction”.

When a politically motivated Fed, led by Fed Chief Arthur Burns, stepped in and stabilized the market and the economy, the monsoon of inflation that occurred as prices rebounded was unprecedented. It was so bad that in 1976, the key slogan that elected President Gerald Ford  was  WIN: Whip Inflation Now. Yet Inflation rampaged to levels not before seen in an industrialized nation and stayed there for three years until Paul Volcker, a new Fed Chairman in 1979, dared to send interest rates north of 20 percent in a purge of inflation that revolutionized Fed policy and kept inflation at bay for nearly 40 years. Only the Pandemic, with its supply chain and worker shortages, rekindled inflation. And the current Fed has made strong progress towards eliminating that price instability.

In the process, however, current Fed Chairman Jerome Powell has drawn the ire of President Elect Donald Trump. Powell has taken a measured approach to Fed policy, allowing for rates to stay as high as economic inflation and jobs data require them to be. The goal of the Fed, as stated by Powell, is to reach 2.0 percent inflation as measured by the core Personal Consumption Expenditure (PCE) Deflator. That is running at 2.8 percent as of last month, which is a tick higher than the previous 12-month period. Notably concerned, Powell said that the Fed would slow the pace of rate decreases if other data support this resurgence of inflation rather than the move toward the stated goal. Interest rate markets have not responded well to Powell’s comments. Nor did President-Elect Trump, who has talked openly about putting the Fed under his control.

Historically, such a move has proven harmful. Any time political agendas have dominated economic agendas, the results have been disastrous. Consider the Weimar Republic when Germany was under the constraints of the Versailles Treaty. The hamstrung economy could not function, and Germans suffered such inflation that they were forced to take paper money in wheelbarrows to the grocery store to buy a loaf of bread! Such economic pain led to the rise of Adolph Hitler and, ultimately, World War II. A more recent example happened in 2016 to 2018 in Venezuela. Political control of monetary policy, in addition to social and economic instability, pushed inflation to One Million percent!

The bottom line is that short-term political agendas must not take over from an institution created to provide long-term economic stability. The Fed must remain independent.  The Fed must live free, or the resilience of our economy will most certainly suffer, if not die.