Kevin Milhous Nixon Warsh

Talk about mixed signals. The new Federal Reserve chairman, Kevin Warsh, was sworn today at the White House with President Trump standing by. “I want Kevin to be totally independent,” Mr. Trump averred. “Don’t look at me. Don’t look at anybody. Just do your own thing and do a great job,” he said. Plus, too, Mr. Trump had some marching orders for the new chairman: “We want to stop inflation, but we don’t want to stop greatness.”Mr. Warsh, added Mr. Trump, “understands that when the economy is booming that’s a good thing. . . . we don’t have to go crazy. Just let it boom. We want it to boom.” Mr. Trump also told the new chairman that he “just turned on the television” to “see how the stock market’s doing today,” and it’s “up 600 points. That means they like you.” Mr. Trump mused: “Who knows, but I think it can only go up. I think with you it’s only going to go up.”It’s not our intention here to crack wise over Mr. Trump’s suggestion that the Fed pursue policies that are in line with his economic agenda. Nor do we intend to belittle Mr. Warsh or doubt his integrity. It is our intention, though, to underscore the anomaly, constitutionally speaking, of an institution like the Federal Reserve. The Framers failed to include a central bank in the Constitution, and instead gave Uncle Sam’s monetary powers to Congress.Mr. Trump’s freighted remarks today call to mind President Nixon’s comments in 1970 when an earlier Fed chairman, Arthur Burns, acceded to the job. Noting the applause for Burns, Nixon joked: “You see, Dr. Burns, that is a standing vote of appreciation in advance for lower interest rates and more money.” To be sure, Nixon conceded “the Federal Reserve is independent,” and “certainly independent of the President.”“I respect that independence,” Nixon noodled, but “I do have the opportunity as President to convey my views to the Chairman of the Federal Reserve.” Quoth Nixon: “I have some very strong views on some of these economic matters, and I can assure you that I will convey them privately and strongly to Dr. Burns.” He concluded: “I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed.”Nixon’s comments could raise the question, as we’ve put it, whether a president’s proper role is to be the “timid adviser to the man he hired to run the Fed.” As it turned out, Nixon urged Burns “to engage in expansionary monetary policies prior to the 1972 election,” economist Burton Abrams reports, and advised Burns not to tighten monetary policy. These moves, plus Nixon’s abandonment of the gold standard, sparked a wave of inflation.Burns’ tenure serves as a cautionary tale for the new Fed chief. “Will the position amount to a poisoned chalice, as it proved for Nixon’s nominee for Fed chairman,” these columns asked before Mr. Warsh was nominated. The question illuminates the mistake Congress made in 1913 by delegating its monetary powers to a central bank. The Framers had already assigned these authorities to Congress knowing that it is the most accountable — and political — branch.By trying to insulate the Federal Reserve from politics, Congress formed a central bank that lacks democratic accountability. The Fed’s stewardship of the dollar, too, has seen the greenback’s gold value plunge to a 4,500th of an ounce from a 20.67th when the Fed was created. America is yet reeling from inflation fomented by fiat money. We don’t doubt Mr. Warsh’s resolve to tackle these issues, but the ultimate responsibility rests on Capitol Hill.

Kevin Milhous Nixon Warsh

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