Why the independence of the US Federal Reserve may be at threat

Trump's disposition and a recent Supreme Court ruling raise worries about the fragility of the US central bank's autonomy

- BARRY EICHENGREEN

The independence of the US Federal Reserve is back in the spotlight. Late last month, Fed Chair Jerome Powell met at the White House with President Donald Trump "to discuss economic developments," as the Fed antiseptically put it in a post-meeting statement. Market participants will wonder what went on.

Held at the president's request, the meeting was exceptional but not unprecedented. Fed chairs have met with presidents on occasion, although those occasions generally were less than propitious. In 1965, William McChesney Martin met with Lyndon B. Johnson at LBJ's Texas ranch. Johnson worried that a Fed interest-rate hike had created headwinds for growth, and anticipated a challenging midterm election.

Johnson confronted the Fed chair physically as well as verbally, using his considerable girth to pin Martin to a wall. The impact on Fed policy is disputed to this day. President Richard Nixon met with his Fed Chair Arthur Burns on scores of occasions, regularly pressing him to pursue expansionary monetary policies, which Burns obligingly did.

In 1984, with another election looming, Ronald Reagan summoned Paul Volcker to the White House, where James Baker, the president's chief of staff, instructed Volcker not to raise rates.

Ben Bernanke met repeatedly with George W. Bush during the Global Financial Crisis, when cooperation to prevent collapse of the financial system was imperative.

Powell himself dined with Trump at the White House in 2019.