“Scratch one big economic worry off the list for Hillary Clinton. Federal Reserve policymakers on Wednesday kept their key interest rate steady, avoiding a potential stock market disruption and putting the central bank on the sidelines until after Election Day.” That’s the lead sentence on Politico’s story this afternoon about the decision of the Federal Open Market Committee to leave its key interest rate unchanged. It’s the umpteenth time it’s flinched.
If the Politico weren’t so all-fired objective, one might speculate that it was in the camp with Donald Trump, who reckons that the Fed has been playing political games. The committee’s decision, after all, means, as Politico put it, that “voters are not likely to see big stock price declines or a slowing economy before the November 8 election.” Chairman Yellen, though, denied any perfidious political plan. “I can say emphatically,” she told her press conference, “that partisan politics plays no role in our decisions.”
Mrs. Yellen reminds the National Review’s John Fund of the immortal character of Lucy in Charles Schultz’s comical strip “Peanuts.” She is the one who is always holding the football for Charlie Brown to kick, only to yank it away at the last moment. Mr. Fund thinks this captures the psyche of Mrs. Yellen, who is always leading the analysts to think the Fed might be ready for an interest rate hike only to pull back at the last moment, leaving the pundits to go, like Charlie Brown, tuchus over teakettle.
Or to put it another way, all this is evidence that the Federal Reserve doesn’t have the foggiest notion of what is meant by “political.” Or that it is in denial about the fact that it was launched into partisan politics when America closed the gold window and ended the Bretton Woods arrangements. Or that its political role was formalized in 1978 when Congress handed it the so-called dual mandate, adding to stable prices the assignment of maintaining full employment.
It’s a wonder Congress didn’t given the Fed a seat in the Electoral College. Or make it a third house in a tri-cameral legislature. The irony of the employment mandate — given in the law known as Humphrey Hawkins — is this. At the time, 1978, unemployment was at 6.3%. The whole idea of the mandate was to bring it down. But on the evidence of the annual unemployment rate since then, no wonder Congress is looking at a repeal of the mandate and getting the Fed out of politics. Then Congress can concentrate on the combination of supply-side measures and sound money that will make our economy great again.