August 27, 2025
President Trump wants interest rates cut. Since the Federal Reserve won’t do it – he’s putting tons of pressure on the Fed and trying to fire fed governors so he can install his own people on the board to carry out his wishes. Let me explain why losing independence in the Federal Reserve or having the Fed be an extension of the White House would be very bad for you, your wallet and the power of the dollar. And here’s the thing – we’ve been down this road before – and it didn’t end well for anyone for more than a decade. I’m gonna tell you a little story….about a man named Arthur Burns.
Before I tell you about Arthur Burns — I want to make sure we’re all on the same page. The federal reserve – which is the central bank of the United States is responsible for monetary policy including interest rates. The fed’s mission is to ensure stable prices and maximum employment. Those two things are constantly tugging at each other. Because the US economy doesn’t just stand still. It’s always moving and changing. And to make those monetary policy decisions that keep everything in balance — the fed makes its decisions on its own. Politicians have no say. While the fed is technically part of the US government it is completely independent. And that is by design.
…because monetary policy is not popular. No one likes high interest rates — but sometimes the fed has to increase them in order to bring inflation down. Because when inflation is high – prices are not stable for anyone. Interest rates are the main tool the fed uses to get that inflation under control. But it means higher borrowing costs for everyone…which is not pleasant. Now if the fed was run by the president or subject to the whims of the white house, we would never see high interest rates. For the same reason why no politician wants to raise taxes. It’s not popular. So now that we understand the basics let’s get to our story.
There once was a man named Arthur Burns. Burns was an American economist and spent two consecutive terms as the Federal Reserve chairman from 1970 to 1978. He had a very close friend – President Richard Nixon – who had nominated Burns to be the Fed chair because Nixon saw Burns as a Republican loyalist and a personal ally. In the end they were more like frenemies – but we’ll get there. The trouble was – at the beginning of Nixon’s presidency – he was dealing with a tough economy. Americans were out of work – unemployment was high – and inflation was also high. But Nixon had a reelection campaign to run – and he wanted to stay in power. So he turned to his friend Burns and tried to bully him into lowering interest rates saying that money needed to be cheap again so companies would hire and more people would go back to work. Because if more people were back to work – they would be more likely to vote for Nixon. Burns said that is a bad idea. The economy is not in a good place for rate cuts. And he wouldn’t do it. But Nixon persisted. And started leaking stories to the media about wanting to expand the federal reserve board of governors so burns’ power would be weakened and Nixon could get what he wanted in the end. Sound familiar?
In August of 1971 Nixon tried to do something about the economy himself. He imposed price controls which included a freeze on wages, prices and rents, he imposed a temporary 10% tariff on imports, and suspended the dollar’s convertibility into gold. Nixon was warned by his advisors – he’s taking the easy way out – and he might as well be putting lipstick on a pig because these moves were going to make the economy worse in the end – but Nixon did it anyway. He had an election to win after all. Shortly after he put in those price controls – on the surface the US economy seemed to be doing much better. That combined with those leaks to the media and the pressure from Nixon it was all too much for Burns. He caved and gave Nixon what he wanted. Several interest rate cuts over. And that did the trick. Tons of money was circulating in the US economy –GDP was up, inflation came down and fewer people were unemployed. It got Nixon reelected – in a landslide. But it was all a mirage….like a boiling pot with a lid ready to blow.
Because once those price controls disappeared in 1973…just as Burns and Nixon’s advisors had warned – the lid blew. Pew!!! Gas and food shortages started appearing, inflation skyrocketed overnight to more than 9% and by 1974 it was almost 12%. By then Burns and Nixon were at each other’s throats. Nixon blamed Burns for the horrible economy and Burns was like dude this is on you. Burns had no choice he was forced to slam the brakes on this out of control Nixon economy and the fed jacked up interest rates– which then triggered a deep recession, which then led to stagflation which the led to a new president and fed chair coming into office and jacking up interest rates even more … well over 15% in the early 1980s to crush the Nixon inflation.
Friends –the story of Nixon and Burns is a cautionary tale. One that shows us when the president and politicians interfere with the independence of the federal reserve for political gain– it leads to long-lasting economic damage.
Read more about the Nixon/Burns relationship here.
