The Fed will act during presidential election seasons.

The question now is, will the Fed act if the case is marginal?

If you spoke to any Federal Reserve chair, they would tell you that they make their decisions based on what's right for the economy, not on the election cycle.

Read all the transcripts and see if anybody mentions in any way the pending election.

It just isn't part of our thinking.

It's not what we're hired to do.

Inflation is the chief concern of U.S. adults, according to a May 2024 survey.

But stabilizing prices is traditionally the Fed's job, not the president's.

My plan is to address inflation, start a simple proposition, start with the Fed.

A long line of experts say that presidents should avoid meddling in the central bank's affairs.

They are one of the most powerful institutions probably in the world.

An executive's ability to control the power of the purse could one day lead us down to a president who would be more like a king.

Former President Donald Trump is reportedly considering how to exert more influence over the Fed.

Irrespective of Donald Trump's plans about what to do with the Fed, there is a concern that any future president might be tempted to influence the Fed because of the U.S.'s fiscal position.

So how does the Fed factor into the 2024 election?

A committee at the Federal Reserve makes decisions that can influence how voters feel about the economy.

For that reason, they're supposed to be independent and far away from politics.

Most studies show that more independence from the Federal Reserve leads to better monetary policy.

Central bankers at the Fed are not elected.

They can't be easily fired by the executive branch, and they can't be easily influenced by the president.

Members of the Board of Governors have 14-year terms, and this is to protect independent judgment.

That said...

Appointments at the Fed are certainly getting very politicized in recent years.

Seven governors on the Federal Reserve Interest Rate Committee are nominated by the president and confirmed by Congress.

And then five reserve bank presidents.

Those reserve bank presidents, it's going to be the New York Fed president and four other reserve bank presidents who kind of rotate through.

In 2024, four of the sitting members were nominated by President Biden.

Two were nominated by President Trump.

And the chair, Jerome Powell, was approved by leaders from both parties.

The Fed chair is not really a political appointee.

Pretty typical that even if you have presidents from different parties, they'll still reappoint the same person as the Fed chair.

If this became a tool of politicians, then of course what they're going to do is they will want to lower interest rates now because low interest rates are like dessert before dinner.

It always tastes pretty good, but then you have to deal with actually getting some nutrition.

From 2022 to 2023, the Federal Reserve took its interest rate from near zero to above five percent.

The committee believes this level is working to reduce inflation.

You see it in the labor market.

You see it in inflation-sensitive spending, where demand has clearly come down a lot over the past few years.

Sometimes, like in the post-pandemic era, central bankers use higher interest rates to restrict economic growth and prevent prices from climbing so quickly.

We've been going through a period of history where the Fed has been pretty rapidly rising rates, and we hadn't seen anything like that in a number of decades.

These higher interest rates that we've been experiencing for the past two years or so make the cost of money and credit more expensive.

But sometimes, politicians may pressure the central bank to cut its interest rates.

Politicians, they know this might have an inflationary impact, but if they are a few months away from the election, then they think, OK, let's stimulate activity.

Some past presidents have pressured the Fed to lower interest rates, even if that would be a dangerous decision.

The most notable example came under President Nixon.

We must stop the rise in the cost of living.

So the relationship between President Richard Nixon and Fed Chair Arthur Burns is probably the best-known historical example of presidential pressure on a Fed chair.

Nixon appointed Burns in 1969 because he expected that Burns was going to be a Republican Party loyalist.

Take, for example, this conversation from December 1971, 11 months before the next election.

Chair Burns says to Nixon,

Look, I wanted you to know we reduced the discount rate today.

To which President Nixon replies,

Oh yeah, yeah, yeah, good.

You can lead them, you know.

You know, you always have now, so just kick them in the rump a little.

Nixon also put artificial controls on wages and prices to guide the consumer economy.

He went on to win 1972's election, commanding 60.7% of the popular vote.

Of course, after the price controls were lifted, all of that monetary easing led to this big burst of inflation.

It's sort of gone down in history as a nightmare for central bank independents.

Nixon famously resigned from the presidency amid the escalating Watergate crisis in 1974.

At the same time, inflation was running rampant, rising 10% from the year before.

Governments beyond Nixon may have pressured the Fed for political gain.

The variation in these meetings is enormous.

For example, former President Clinton met only six times with people from the Federal

Reserve.

For Nixon, that count was 160.

The consequences were almost always negative.

I find little evidence that the pressure affects real activity.

So while it increases prices, it actually does not stimulate the economy.

But frequently, conditions within the economy may call for Fed action, even in an election year.

So we looked at 34 years of data going back to 1989.

The Fed will react to shocks that hit the system in both the great financial crisis and the pandemic.

Both had a banking and financial element to them.

The case for cutting was very obvious and not very controversial.

As recently as March, the Federal Reserve signaled that it would cut interest rates three times in 2024.

But as the summer approached, the central bank hedged on its forecast of lower interest rates because annual inflation hadn't yet slowed to their target rate of about 2%.

I think keeping the policy rate where it is, it's restrictive, that'll continue to sort of slowly grind down the economy, but not throw it off a cliff.

The current state of the economy could play a big role in the election.

Wages keep going up.

Inflation keeps coming down.

Inflation has dropped from 9% to 3%, the lowest in the world, and tending lower.

Inflation has been falling.

It's just always really hard to tell because interest rates kind of work with a lag.

We don't know exactly how long it takes for their effects to spread.

Biden's economic administration, led by former Fed officials, has been criticized for heavy domestic spending, which may be inflationary.

Bidenomics, if I was a professor, I'd give them an F. The Fed needs to stop helping them out because it's causing inflation.

The inflation was primarily caused by the pandemic and the policy response.

But the policy response under both parties, most of the fiscal stimulus occurred when

President Trump was president.

And yes, President Biden continued that.

Inflation works with a lag.

And so this was something, this was built up all the way through the pandemic.

Reality is that short-term interest rates are abnormally high right now to try to combat inflation.

Inflation's been coming down.

It'll come down some more.

So it makes sense to normalize.

President Biden has promised to avoid interfering in the tasks of civil servants, which include the staff at the Fed's Board of Governors.

His opponent, former President Donald Trump, reportedly has plans to make interest rate decisions himself.

The Wall Street Journal now reporting that Donald Trump's allies are quietly drafting proposals that would attempt to erode the Federal Reserve's independence.

You would have an arrangement with the Fed that is not the norm that we've had in the last 40 years.

Former President Trump, when he was in office, openly criticized the Fed for keeping policy too tight.

That according to one study, did have an effect both on markets' perceptions of what the Fed would do and actually on the Fed.

So the study suggests that the Fed actually lowered rates lower than they otherwise would have been because of the pressure from the president.

It was something the Federal Reserve buckled at.

They were they were concerned about that.

The campaigns for both President Biden and former President Donald Trump did not respond to CNBC's request for a comment.

But in May 2024, the White House did put out a statement on the importance of central bank independence.

The use of low interest rates, along with strong spending, has devastated other societies throughout history.

The framers and ratifiers were very intentional to set up a system in which Congress would be the only one, not the president, to exercise the power of the purse because, of course, they had this long and familiar history of European monarchs abusing the public fisc.

In the best case scenario, in the best state of the world, the Fed doesn't do anything differently just because it's an election year, especially in regard to its monetary policy function.