Last week Federal Reserve Chair Janet Yellen hinted that the Federal Reserve
Board will increase interest rates at the board's December meeting. The positive
jobs report that was released following Yellen's remarks caused many observers
to say that the Federal Reserve's first interest rate increase in almost a
decade is practically inevitable.
However, there are several reasons to doubt that the Fed will increase rates
anytime in the near future. One reason is that the official unemployment rate
understates unemployment by ignoring the over 94 million Americans who have
either withdrawn from the labor force or settled for part-time work. Presumably
the Federal Reserve Board has access to the real unemployment numbers and is
thus aware that the economy is actually far from full employment.
The decline in the stock market following Friday's jobs report was attributed
to many investors' fears over the impact of the predicted interest rate increase.
Wall Street's jitters about the effects of a rate increase is another reason
to doubt that the Fed will soon increase rates. After all, according to former
Federal Reserve official Andrew Huszar, protecting Wall Street was the main
goal of "quantitative easing," so why would the Fed now risk a Christmastime
downturn in the stock markets?
Donald Trump made headlines last week by accusing Janet Yellen of keeping
interest rates low because she does not want to risk another economic downturn
in President Obama's last year in office. I have many disagreements with Mr.
Trump, but I do agree with him that the Federal Reserve's polices may be influenced
by partisan politics.
Janet Yellen would hardly be the first Fed chair to allow politics to influence
decision-making. Almost all Fed chairs have felt pressure to "adjust" monetary
policy to suit the incumbent administration, and almost all have bowed to the
pressure. Economists refer to the Fed's propensity to tailor monetary policy
to suit the needs of incumbent presidents as the "political" business cycle.
Presidents of both parties, and all ideologies, have interfered with the Federal
Reserve's conduct of monetary policy. President Dwight D. Eisenhower actually
threatened to force the Fed chair to resign if he did not give in to Ike's
demands for easy money, while then-Federal Reserve Chair Arthur Burns was taped
joking about Fed independence with President Richard Nixon.
The failure of the Fed's policies of massive money creation, corporate bailouts,
and quantitative easing to produce economic growth is a sign that the fiat
money system's day of reckoning is near. The only way to prevent the monetary
system's inevitable crash from causing a major economic crisis is the restoration
of a free-market monetary policy.
One positive step Congress may take this year is passing the Audit the Fed
bill. Fortunately, Senator Rand Paul is using Senate rules to force the Senate
to hold a roll-call vote on Audit the Fed. The vote is expected to take place
in the next two-to-three weeks. If Audit the Fed passes, the American people
can finally learn the full truth about the Fed's operations. If it fails, the
American people will at least know which senators side with them and which
ones side with the Federal Reserve.
Allowing a secretive central bank to control monetary policy has resulting
in an ever-expanding government, growing income inequality, a series of ever-worsening
economic crises, and a steady erosion of the dollar's purchasing power. Unless
this system is changed, America, and the world, will soon experience a major
economic crisis. It is time to finally audit, then end, the Fed.
