Victoria Guida writes:

The Federal Reserve is not a place that panics.

My experience of the central bank and its staff is that they try to think as many steps ahead as possible. Just as Fed policymakers weigh the balance of risks to the economy, and the many potential scenarios that may unfold, they similarly weigh the balance of political risks to their mandate and autonomy.

It’s an institution made up of regular people, of course — people who feel anxiety and frustration and anger and fear. But outwardly, every response is deeply calculated.

That is why they have tried to hold off, for as long as possible, a direct confrontation with President Donald Trump.

And it’s why even now, as Trump makes his most aggressive move yet to challenge the Fed’s political independence — his attempt to fire board member Lisa Cook — the institution‘s response is firm but not furious.

“Lisa Cook has indicated through her personal attorney that she will promptly challenge this action in court and seek a judicial decision that would confirm her ability to continue to fulfill her responsibilities as a Senate-confirmed member of the Board of Governors of the Federal Reserve System,” a Fed spokesperson said. “As always, the Federal Reserve will abide by any court decision.”

It’s a response that is characteristic of the Powell era: the subtlest, least controversial form of resistance.

Still, the heightened awareness among central bankers — not just here in the U.S., but also abroad — of Trump’s attacks on the Fed, and the potential ripple effects for the global economy, was palpable at the Fed conference in Jackson Hole late last week.

The audience there gave Fed Chair Jerome Powell a standing ovation before his speech, making clear that the support was for him personally, rather than simply being about his remarks.

The notion that monetary policy should be determined by interpretations of data, rather than what politicians say, is deeply baked into central bankers’ DNA (with history as a guide that keeping rates low when politics dictate has a tendency to lead to higher inflation — and ultimately higher rates).

And the decision to signal it will not automatically bend to Trump’s decree shows that the Fed is aware that the battle does not end here. [Continue reading…]