For the better part of the past four years, we've had to listen to the chattering classes defending the sanctity of the independence of the Federal Reserve. President Trump was routinely lambasted for constantly criticizing Jerome Powell, while several of his other nominees to the Fed, such as Herman Cain and Steven Moore, were deemed to be too cozy to Trump to warrant consideration. Both of them withdrew their nominations for other reasons, but it appeared that their nominations were DOA. For the same reason, the confirmation of the "controversial" Judy Shelton looks like it is going to die on the vine because she's been portrayed as Trump's lackey.

Yet now we have the prospect of Janet Yellen, the former chair of the Fed, being nominated as Joe Biden's Secretary of the Treasury. If nothing else, that will basically put the nail in the coffin of the notion of Fed independence. Does anyone seriously doubt that the Treasury and the Fed will be joined at the hip when the two most recent Fed chairs head those two agencies?

Yet that prospect probably won't be an impediment to her being confirmed by the Senate—on the contrary. The markets greeted Yellen's nomination with absolute euphoria, as well they should. The prospect of the Treasury and the Fed working more closely together in a time of crisis is certainly a reason for optimism. And it's certainly good for my portfolio, so I'm not complaining. But lost in all of the jubilation is that the idea of Fed independence has gone by the wayside, and nobody seems to give a hoot.

This is certainly not a bad thing. The whole idea of Fed independence was always suspect. The Fed is no more independent than the FBI or the Energy Department. It's just another branch of the government that arguably should always work in tandem with the Treasury for the betterment of the U.S. economy and usually does. Yet someone created this fiction that the Fed is somehow the moral equivalent of the Supreme Court and above politics. Continue reading "Is Fed "Independence" Dead?" →