If you want to pressure the Fed to goose the economy and help at the polls, there's a way to do it: quietly, where nobody sees you. That's how Nixon did it. Because whether you're trying to lock down your own reelection or juice the midterms for your party, the game only works if the markets don't smell politics.
The moment you broadcast your bullying on Twitter or at rallies, the jig is up: investors see the thumb on the scale, they price in inflation, and long-term borrowing costs climb. Everyone knows you're worried about election results, not the future economy. In other words, you get the exact opposite of what you were aiming for — more expensive money, not cheaper. And the cheaper money is what gooses the economy.
The Fed's Actual Job
The Federal Reserve is not an extension of the White House. Its core mandate is simple:
Stable prices (≈2% inflation).
Maximum sustainable employment (roughly 4-4½% unemployment, not zero).
Its tool is the overnight lending rate — the federal funds rate. Banks borrow reserves from each other every night to settle payments, and that short-term price sets the floor for all credit. Add expected inflation, credit risk, operating costs, and profit, and you get the rates families and businesses actually pay.
Managing this system requires deep expertise in banking, monetary transmission mechanisms, and global capital flows. No one in the markets thinks a president understands overnight rates better than the people who've spent their careers studying them.
Why Credibility Is the Real Currency
Here's the key insight most people miss: cutting the fed funds rate only boosts growth if markets believe inflation will stay under control. The moment investors think the Fed is dancing to a president's tune, they mark up long-term rates to protect themselves. Mortgages, corporate bonds, and Treasuries all rise.
This is the essential point: the Fed controls the overnight dial, but the real economy runs on long-term rates — and those move on trust, not presidential tweets. When markets lose faith in Fed independence, they do the Fed's job for them by raising rates themselves.
Nixon and LBJ vs. Modern Presidents
History is littered with presidents leaning on the Fed - usually unsuccessfully.
For example, Johnson summoned Fed Chair William Martin to his ranch in 1965 and reportedly shoved him against a wall, demanding lower rates to fund Vietnam and the Great Society, but Martin held his ground. That pressure failed.
Nixon successfully pressured Arthur Burns — private meetings where he made clear that Burns's reappointment depended on keeping money loose through the 1972 election. Nixon's success helped create the inflation spiral of the 1970s. But he did it in the shadows.
The quiet approach worked precisely because markets didn't know it was happening. Investors assumed the Fed's decisions were based on economic fundamentals, not political calendars. Had markets known Nixon was pressuring Burns to keep rates low through the 1972 election, they would have immediately priced in future inflation risk and pushed long-term rates higher.
The moment any president makes Fed pressure into public theater, the game changes completely. But there's a crucial distinction: Public criticism aimed at voters is one thing - markets can dismiss that as political posturing. The real danger comes when markets believe the president actually has his thumb on the scale and the Fed might cave. Once investors think politics will trump economics in actual Fed decisions, credibility collapses.
The danger of posturing is that even if you're bluffing, markets may take you seriously. You can't control how investors interpret presidential statements about monetary policy. What starts as harmless political theater can trigger real market reactions if investors think the threats are credible. It's a bad place to play games because the outcome is unpredictable.
Stacking the Fed board with loyalists creates the same problem if markets can see it happening. When investors lose trust in Fed independence, they essentially create their own shadow monetary policy through pricing decisions. This defeats the entire purpose of having a central bank — the Fed exists precisely to prevent the chaos of thousands of market participants making independent monetary judgments.
The Hard Lesson
Volcker's rate shock in the 1980s — double-digit interest rates and a crushing recession — was the price of restoring credibility after years of political manipulation. When Volcker took over in 1979, inflation was running at 13%. To break it, he drove the fed funds rate to 20% by 1981, triggering the worst recession since the 1930s. Unemployment hit 10.8%. Construction stopped cold. Car sales collapsed. The human cost was staggering, but it worked: inflation expectations finally broke, and the 1980s boom became possible.
That's what it takes to rebuild Fed credibility once it's been destroyed. Once credibility is gone, regaining it is extraordinarily expensive.
Warren Buffett Knew Quality
It's always good to ask how Warren Buffett viewed things. At Berkshire Hathaway's 2020 shareholders meeting, Buffett was asked about Fed leadership over the decades. His answer was unequivocal: "I've always had Paul Volcker up on a special place, special pedestal in terms of Federal Reserve chairmen over the years. We've had a lot of very good Fed chairmen, but Paul Volcker, I had him at the top of the list."
Buffett has been equally supportive of Jerome Powell, saying "There is nobody better than Jay Powell to be running the Fed" and "Jerome Powell has been terrific." He praised Powell's handling of the pandemic crisis and admitted "I do not think I could run the Fed as well as Jay Powell has run it." The pattern is clear: Buffett respects Fed chairs who maintain institutional integrity under pressure.
Most importantly, Buffett has been unwavering in his support for Fed independence itself. "I am 100% for the independence of the Fed," he's said repeatedly, adding "We do not want to fool around with the independence of the Fed." Coming from someone who'd observed markets for over half a century, that's the ultimate endorsement of why credibility matters more than political convenience.
Closing Punch
The lesson is simple: public pressure against the Fed isn't just a mistake — it's proof of ignorance. Talking about it out loud shows you don't understand the most basic principles of macroeconomics.
When you attack the Fed publicly, you're telling markets exactly what they fear most: that short-term politics trump long-term economic stability. Markets respond by pricing in that risk, which means higher borrowing costs for everyone else. A president who thinks yelling at the Fed makes money cheaper isn't a "stable genius." He's just ignorant.