Calling one of his predecessors “responsible more than any other person” for an independent and non-politically pressured central bank, today’s chairman of the Federal Reserve referred to that predecessor’s view Monday in underscoring the Fed’s continued freedom from political influence.
In a speech introducing a film in Salt Lake City about former Federal Reserve Board Chairman Marriner Eccles, current board Chairman Jerome H. (“Jay”) Powell pointed to a quotation inscribed on a plaque at the Fed building named for Eccles in Washington, D.C.: “’The management of the central bank must be absolutely free from the dangers of control by politics and by private interests, singly or combined,’” Powell said.
The Federal Reserve, and Powell in particular, has been under intense pressure by President Donald Trump over its decisions in setting interest rates, related to monetary policy. Powell has responded, repeatedly, in the past that the Fed will not be influenced by political pressures.
On Monday, the current Fed chairman said that the Fed today is a “a central bank able to make decisions in the long-term best interest of the economy, without regard to the political pressures of the moment” as a result of Eccles’ leadership.
He pointed to two “landmark accomplishments” under Eccles’ tenure as chairman of the Fed (from 1934 to 1948) and as a board member (to 1951) that “established the modern Federal Reserve,” Powell said: the Banking Act of 1935, and the Federal Reserve-Treasury Accord of 1951.
The 1935 Banking Act, Powell said, significantly strengthened the structural independence of the Federal Reserve and, “symbolically important,” authorized the Fed to move its meetings from the Treasury Department to a new building, which now bears Eccles’ name.
The 1951 Fed-Treasury accord, Powell said, gave back to the Fed control over monetary policy, which the Fed had ceded to the Treasury Department during World War II. Under that agreement, the Fed agreed to maintain a low interest rate peg on government bonds. The low rates helped the government finance the war, Powell said. However, after the war ended, inflation soared, subsided for a time, and then spiked again with the onset of the Korean War.
“In 1951, Marriner led other Board members in precipitating a clean break with the peg arrangement, laying the foundation for the modern Fed,” Powell said. “The Federal Reserve-Treasury Accord of that year separated government debt management from monetary policy and freed the Fed to combat high inflation and set short-term interest rates based on what was best for the economy.”
Powell was introducing the premiere of the film “Marriner Eccles: Father of the Modern Federal Reserve,” a biopic of the former Fed chairman, produced in Utah by KUED-TV. Eccles was a Utah native and long-time banker in the state.