President Donald Trump and Federal Reserve (Fed) Chairman Jerome Powell are at odds over monetary policy. Trump wants lower interest rates, and Powell has resisted. It is not the first time. They fought in much the same way and over exactly the same matter for months back in 2018 and 2019. 

Nor is the Trump-Powell altercation unusual. For decades, presidents and Fed chairs have acted out the same drama. The White House insists on the economic stimulus of easier monetary policies for electoral purposes. Fed chairs resist, ostensibly in the service of a larger policy objective, such as controlling or preventing inflation. For better or worse, the presidents have usually gotten their way. That is likely how things will turn out this time as well.

As in past such disputes, today’s contest pivots on questions of Fed independence. Economists, bankers, investors, and policy analysts decry Trump’s interference and claim that shielding the Fed from political pressure is essential, even “sacrosanct,” as William Galston recently put it in The Wall Street Journal. 

The underlying ideal of the Federal Reserve’s independence dates back to the era when currencies were based on gold, as was the case for much of the dollar’s history. That link took currency management and much of monetary policy outside the political arena. In doing so, it provided a check on fiscal profligacy and otherwise secured a defense against inflation as well as a degree of financial and price stability. 

With the dollar tied to gold, for instance, there was no possibility of the government recklessly printing money to support wayward spending or policies. When modern economic policy management realized that it had to dispense with the gold link, Fed independence became an essential way for monetary authorities to duplicate that former fiscal, economic, and inflationary discipline.

While such goals impel almost all—even politicians—to endorse the ideal of Fed independence, it has seldom existed in practice. The Fed has almost always bowed to presidential demands. In 1971, President Richard Nixon bullied Fed Chairman Arthur Burns into lowering interest rates despite continuing inflationary pressures. Burns again

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