“Just kick ‘em in the rump a little,” the president told the chairman of the Federal Reserve four days before the central bank’s interest rate setting committee was to meet. The American economy was limping along, federal spending was a growing concern, and a war was raging halfway around the world.
It was late 1971, and President Richard Nixon was on the phone with Fed Chairman Arthur Burns. Burns was telling the president the Federal Open Market Committee was set to cut a key interest rate in the effort to ignite the economy. Nixon wanted Burns to send a clear message that the committee needed to act aggressively to ease monetary policy. The 1972 presidential election was 11 months away.
It would take a decade, marked by demoralizing inflation and sharply higher unemployment, before the Federal Reserve began to forge its reputation as an institution independent of politics.
