Follow the Money

All my instincts
They return
And the grand facade
So soon will burn
--Peter Gabriel

After former Fed governor Bill Dudley called for the Federal Reserve to ditch prospective interest rate cuts that might help Donald Trump get re-elected, he drew fire from those aghast that such a politically motivated move would compromise the Fed's 'independence.'

As these pages have observed on more than one occasion, the notion that the Fed, or any other government agency for that matter, is somehow independent of the very institution supplier of the resources that butters its bread is supreme folly.

Suppose that it was decided that Federal Reserve officials were elected by, say, top managers at J.P. Morgan (JPM) and that their salaries would be paid by the firm. All data collection and research activities conducted by the central bank would also be funded by JPM. We wouldn't want that, you'd quickly reply. If JPM were to make personnel decisions and provide the resources, then the Federal Reserve would become an extension of JPM.

Well...

A formal explanation for the phenomenon is grounded in resource dependence theory. Informally, we know just to 'follow the money...'

All purported independent branches and agencies of government are subject to influence. We see it routinely. Supreme Court. FBI. CIA.

If you buy into the story that these agencies are politically independent, then you're being played.

no position