Page 14 - 2024 Annual Report

WHO NEEDS THE FED?

THIS AD APPEARED ON PAGE A4 OF THE MONDAY, JUNE

24, 2024, EDITION OF THE WALL STREET JOURNAL.

Perhaps nothing in financial news receives more The Fed may claim it is expertly managing the
attention than an announcement from the Federal economy, but in 2024, it is still doing what it has
Reserve. About eight times per year, the Federal been doing since it was established in 1913: creating
Reserve’s Federal Open Market Committee meets to more economic instability with seemingly endless
formally decide and announce its plans for monetary crises such as we saw in 1953, 1957, 1960, 1969, 1973,
policy. Every announcement has the potential to 1980, 1981, 1990, 2001, 2008, and 2020. The best we
cause a rally, or a rout, in financial markets. can say about the Fed is that it failed to prevent the
It makes sense that a mere announcement from the Great Depression, the 1970s stagflation, and the Great
Fed has the power to move markets in a big way. Recession. But the Fed didn’t merely fail to prevent all
The Fed wields vast power over interest rates, bank this. The Fed created these economic disasters.
regulation, and the money supply. When it comes The Fed claims—always without evidence—that
to policies that affect the everyday lives of nearly everything “would have been worse” without the
every American—and even countless people outside Fed. Yet history has shown that economic growth
the United States—it is likely that no government and a rising standard of living hardly depend on the
institution is more powerful than America’s central existence of the Fed. Indeed, in the second half of the
bank, the Federal Reserve. nineteenth century—when the nation had no central

Yet this institution works largely in secret, has never bank at all—America experienced an incredibly
been audited by Congress, and is virtually never dynamic period of rising standards of living. Notably,
challenged by anyone in Washington or in the legacy this period was also characterized by deflation—
media. In this era of eroding public trust in Congress, something the Fed hates—which helped drive down
the presidency, the media, and even the military, it’s the prices of goods and services, thus increasing real
quite remarkable that the Federal Reserve faces so wages.
little scrutiny. The Fed today assures us that economic growth
Much of this is because the Fed’s supporters have for depends on inflation, which ultimately destroys the
decades so successfully spread myths about how the dollar’s purchasing power. The Fed has gone to great
Fed provides stability and prosperity. lengths to institutionalize inflation, in fact. Although
Congress as recently as the 1980s instructed the Fed
A closer look at the reality of the Fed reveals that to seek a goal of 0 percent inflation, the Fed invented
the Fed does not benefit ordinary people nor does a totally arbitrary 2 percent inflation standard in the
it make the economy more stable. Instead, the Fed 1990s. Now, the Fed tells us that the economy needs 2
was the primary source of the forty-year highs in percent inflation at a minimum to keep the economy
inflation consisting of sharp spikes in food, housing, “stable.”
healthcare, and transportation prices. In many cases,
rising prices outpaced wage growth, meaning that Fed economists employ a variety of poorly devised
millions of American households—mostly those economic theories to justify the Fed’s inflationary
with lower incomes and fixed incomes—have agenda. But politics, not economics, is the real driving
experienced negative real income growth in recent force here. The incessant call for more monetary
years. Meanwhile, Fed policy has also driven inflation inflation and ultra-low interest rates serves to benefit
in real estate and equity prices, which has padded certain influential and powerful interest groups at
the portfolios of wealthy households, banks, and the expense of the beleaguered middle and working
governments. classes.

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