- President Donald Trump’s public attacks on the Federal Reserve have been eye-catching.
- But a new story from former Fed Chairman Paul Volcker about President Ronald Reagan. is perhaps even more shocking.
- In a new memoir, Volcker recounts being privately ordered by Reagan’s chief of staff to not raise interest rates prior to the 1984 election while Reagan was in the room.
- Volcker was not planning to raise interest rates at the time, but said he was “stunned” by the direct violation of the Fed’s independence.
Trump renewed the attacks on Tuesday during an interview with the Wall Street Journal, bashing Fed Chairman Jerome Powell and attacking the Fed as the “biggest risk” for the economy.
But Trump’s public tantrums are nothing compared to a new recounting from former Fed Chairman Paul Volcker, who recalled intense pressure from President Ronald Reagan in the run up to the 1984 election.
In a new memoir, according to The New York Times, Volcker said he was called to the White House to meet with Reagan and Chief of Staff James Baker in the presidential library.
Volcker is best known for the “Volcker Shock,” a rapid increase in interest rates in 1980 that helped tame the long-running inflation problem from the 1970s while also contributing to the recession that began in 1981.
It appeared that Reagan did not want a similar tightening cycle, which would have choked off economic growth, prior to his reelection campaign. According to Volcker, Reagan did not say a word, but Baker delivered a strong message.
“The president is ordering you not to raise interest rates before the election,” Baker told Volcker.
Volcker did not plan on raising rates at the time, but the then-Fed chair was “stunned” since the order was an affront to the Fed’s political independence. Volcker also said he later realized that the meeting was conducted in the library since there was likely no recording equipment in the room like in the Oval Office.
Reagan’s apparent intimidation also echoed former President Richard Nixon’s disastrous pressure on former Fed Chair Arthur Burns to keep rates low, which is seen as one of the reasons for the inflation of the 1970s.
The story also jumps out given Reagan’s public reluctance to comment on Fed actions during his tenure.
For instance, when asked about Volcker’s shifts during a press conference in 1982, Reagan replied: “‘I can’t respond to that because the Federal Reserve System is autonomous.” In the same press conference, Reagan said there was “no way I can comment” on calls for Volcker’s resignation.
Trump has complained that the Fed’s current rates hikes are “loco.” But while Trump’s public outbursts are a break with presidential norms, the attacks have been easily dismissed by current Fed Chairman Jerome Powell. The administration had publicly maintained the respect of the Fed’s independence.