Author:  R. Alan Harrop, Ph.D.

 President Trump is engaged in an ongoing struggle with Jerome Powell, the head of the Federal Reserve (Fed) over interest rates. Interest rate levels are set by the Fed and have a substantial impact on the growth of the economy and the national debt. President Trump believes that economic growth is essential for the security of the country but also essential to making America Great Again.  It is important to note that Jerome Powell was not elected by the people whereas President Trump was. Consequently, this issue is directly relevant to whether power belongs to the people as intended by the Founding Fathers or to appointed bureaucrats.

 Historically, the Federal Reserve (essentially the national bank), did not exist until it was created in 1913 as a result of a secret meeting of bankers who drafted the legislation in Jekyll Island, Georgia. The bill creating the Fed was signed into law by Democrat president Woodrow Wilson, who was a leftist. President Andrew Jackson was instrumental in doing away with the previous national bank during his administration in the 1830s, primarily because he believed the national bank had too much power and that Congress should decide important economic policies. The goal of the legislation creating the Fed in 1913, was to create a more “elastic” currency and control the banking industry by creating 12 member banks making up the Federal Reserve system. They would set interest rates on federal bonds as well as the money supply. Remember, this was a time when there was a heated debate over whether to do away with gold as the basis for our money supply. The paper dollar switched from representing a certain amount of gold or silver (which you could redeem), to faith in the promise of the federal government: the so-called promissory note. If you look at the top line on a dollar bill, it now says “Federal Reserve Note.” I remember in my youth that it used to say “Silver Certificate.” Also, remember that in the 1930s, Democrat president Franklin Roosevelt, required all citizens to turn in their gold coins to the government to be replaced by paper money. What all this tells us is that the Federal Reserve has essentially total control over the monetary system of the country.

One of the main functions of the Fed is to use interest rates to control economic growth as well as inflation. Lower rates encourage businesses to borrow so they can expand, resulting in more hiring. Consumers also buy more since mortgage rates and credit card rates go down. Raising interest rates by the Fed is usually done to decrease inflation since it slows economic growth and spending. Since President Trump has been in office, the inflation rate has dropped substantially, surprising most economic experts. President Trump wants the Fed to lower rates so more people can afford to buy homes and other consumer items, which would result in economic growth. He also knows that lowering interest rates will reduce the amount of payment necessary to service the 37 trillion-dollar national debt, which is approaching one trillion dollars a year.

 The Fed has recently announced that they do not intend to lower interest rates in the near future, which is in direct opposition to the president’s request. Since the people selected President Trump to run the country for the next four years, doesn’t it make sense that he should be able to dictate the interest rates consistent with his agenda?

 If so, Congress needs to rein in the independence of the Federal Reserve so that they act in an advisory rather than decision making authority. If not, what would prevent the Fed from using their existing authority to undermine a president with whom they have political differences? A president should be free to exercise his authority to enact the policies and actions that the people who elected him have reason to expect,