Watch on Inflation, 2021

From Truman to Trump, Bludgeoning and Suasion Have Eroded the Fed’s Independence

Historians of monetary policy are recalling a pivotal anniversary — fifty years after President Richard Nixon closed the gold window. The so-called Nixon Shock (August 15, 1971) ended the link between the dollar and gold, and launched the modern era of fiat money.

Nixon’s blockbuster move was followed by an epidemic of inflation — a fitting though painful memory during the summer of 2021, when post-pandemic America is experiencing its highest inflation in years.

Your correspondent argues that the ground for modern inflation was set in an earlier, less well-known episode in the midst of the Korean War — when President Harry Truman tried to force low interest rates on the Federal Reserve. 

Read how repeated attempts to co-opt the Fed into supporting the Administration during times of crisis — which never seem to end — have eroded the willingness of the central bank to deviate from the White House, muting its independence.

All in an article by Roger Lowenstein, in a special issue of International Economy.