Planet Money - A primer on the Federal Reserve's independence

Starting point is 00:00:00 Over the past week, President Donald Trump has gone from threatening to oust Jerome Powell, the chair of the Federal Reserve, to saying he has no intention of firing him. And though so far Trump hasn't taken any action to dump Powell, every time Trump's anger at the Fed chair flares, markets quiver, and economists start flipping out. Because they say the Fed has to be independent, it has to focus on keeping the economy healthy, and that process must be free from politics and pressure. It needs to just focus on what's right for the economy. But why exactly? Hello and welcome to Planet Money.

Starting point is 00:01:03 I'm Darien Woods. Today on the show, a primer on the Fed. From the Indicator podcast, we have three ways of looking at that question for you today. We'll look at what the Fed does, why its independence is so important, and one quieter step President Trump has taken to influence the Fed this year. The Federal Reserve, the US central bank, has two big goals. Keeping prices stable and jobs plentiful.

Starting point is 00:01:46 The Fed can do things like change interest rates to address inflation. Raising interest rates can bring down prices. But it could also make new mortgages more expensive. And it can put people temporarily out of work. Economist Kara Lebinder of the University of Texas told us these can be unpopular moves for a politician. you Last summer, Republican Senator John Kennedy grilled Fed Chair Jerome Powell. you you you you you you you you you you Carola says these comments are revealing. you you you That raises the question, how did the Fed become so powerful. Who wrote a book called Limitless. The Federal Reserve takes on a new age of crisis. you you All right, so let's start with why the Federal Reserve tries to be politically independent. Thank you. you you you you you you you you you Fire hose in early April 2020. you you you The Fed does in general try to stay in its lane, or at least operate under the powers

Starting point is 00:15:09 given to it by the Federal Reserve Act. But it is enormously powerful, and has been lending to all kinds of areas of the economy. And in doing so, it was kind of picking winners and losers. That is not apolitical. So now it finds itself firmly in political crosshairs. After the break, an executive order that lays the groundwork for more presidential control. So ideally the Fed's decisions on interest rates should be independent. That's where we started when Trump was inaugurated in January. But since then, a lot has happened.

Starting point is 00:15:50 President Trump has signed more executive orders than any president this early in the term. He has been spilling the presidential ink. And as we know, many of these orders will be tied up in court for the foreseeable future. But we want to focus on this one executive order as it relates to the Federal Reserve. you you you you Here's what Powell told her House Committee in February about potential executive branch interference. you you Unless he decides to take unprecedented and possibly illegal actions sooner. The original episodes from The Indicator were produced by Corey Bridges, Brittany Cronin and Julia Ritchie. They were engineered by Sina Lofredo, James Willetts and Gidley Moon. They were fact-checked

Starting point is 00:19:28 by Cira Juarez. Kate Kincanon is the editor of The Indicator. Follow us wherever you get your podcasts. This episode of Planet Money was produced by James Snead and edited by Marianne McCune and Mary Childs. Alex Goldmark is our executive producer. I'm Dorian Woods, and I'll see you next time. executive producer. I'm Darian Woods.

Planet Money - A primer on the Federal Reserve's independence

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