More than anything else, the private owners of the Fed covet the ECB’s legal status–independence from the legislature. Because that outcome is prohibited by the U.S. constitution, however, the Fed long ago devised a sales pitch designed to get from legislators what it can’t get from the law.

The sales pitch, known as Federal Reserve Independence, promises great economic outcomes if only congress would allow the Fed to do as it pleases, free from oversight and unconstrained by any congressional checks and balances mandated by the constitution.

The White House memo is the latest version of that same pitch. Incredibly, as the White House version of the pitch has it, allowing the Fed to make large asset purchases from whomever it wants and in whatever amounts, without constraint, is the best way to control inflation.

Aside from the lack of any evidence for the White House’s position, what makes its claim so incredible is its timing, coming, as it does, immediately after (1) inflation hit a 40-year high and (2) the Fed’s balance sheet hit an all-time high as the Fed, free of congressional restraint (exactly what it had pitched for), went on its biggest asset-purchasing spree ever.

Three official sources expose the White House’s inflation claim as a bald-faced lie, starting with economists cited by the White House itself to support its position that “independent” central banks are crucial for controlling inflation. Far from supporting the White House, those economists expressly hold that independent central banks “prompted rapid increases in the price levels in many countries.”

Likewise is the former Governor of the Bank of England, Mervyn King, who publicly stated in May 2022 that the U.S. “money supply held by businesses and households was growing at 25% per year” during the pandemic due to the Fed’s asset purchases, and that that’s what caused recent bout of inflation.

Finally is the current Chairman of the Federal Reserve, who testified in June 2022 that the best way to counter recent inflation was to shrink the balance sheet that the Fed bloated beyond recognition while congress slept at the switch–exactly what the Fed’s “independence” campaign preached as the best way for controlling inflation. Turns out Fed “independence” caused an inflationary disaster that now requires the Fed to reverse course.

Indeed the most withering indictment of the Federal Reserve Independence campaign–as well as the strongest endorsement of the U.S. constitution–lies in contrasting the way congress manhandled the Fed during the global financial crisis (GFC) with its abject servility towards the Fed during the pandemic. The results are night-and-day different.

During the GFC, congress–spurred on an angry populace–pressured the Fed relentlessly, complaining about the increasing size of the Fed’s balance sheet and demanding to know the names of the institutions that were selling assets to the Fed. In other words, congress discharged its constitutional duty to rein the Fed in. Despite the major increase in the Fed’s balance sheet, no inflation followed.

During the pandemic, by contrast, congress–cowering in fear instilled by the 24/7 Covid narrative–abandoned its constitutional duty and gave the Fed exactly what its “Independence” campaign asked for–unfettered freedom to undertake “operational activities” and buy assets. Consequently, the Fed went on a $5 trillion asset purchasing spree that showed up directly in bank deposit accounts and caused the worst inflation since the 1970s.

Sources:

• Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence
• Federal Reserve Act
• May 8, 2012 – Improving the Federal Reserve System: Examining Legislation to Reform the Fed and Other Alternatives
• May 19, 2023 – Central Bank Independence and Inflation Volatility in Developing Countries
• November 17, 2016 – Hearing Before the Joint Economic Committee Congress of the United States
• Monetary Policy Frameworks: An Index and New Evidence
• June 16, 2020 – The Semiannual Monetary Policy Report to Congress
• A New Measure of Central Bank Independence
• June 22, 2022 – The Semiannual Monetary Policy Report to the Congress
• May 22, 2024 – The Importance of Central Bank Independence
• July 9, 2009 – Regulatory Restructuring: Balancing the Independence of the Federal Reserve in Monetary Policy with Systemic Risk Regulation