President Donald Trump is once again floating the idea of firing Federal Reserve Chairman Jerome Powell, ostensibly in objection to excessively high interest rates. But this debate is not about monetary policy. It's a power play aimed at subordinating America's central bank to the fiscal needs of the executive branch and Congress. In other words, we have a textbook case of "fiscal dominance" on our hands—and that always ends poorly.
I'm no cheerleader for Powell. During the pandemic, he enthusiastically backed every stimulus package, regardless of size or purpose, as if these involved no tradeoffs. Where were the calls for "Fed independence" then? And where were the calls for fiscal restraint after the emergency was over?
Powell failed to anticipate the worst inflation in four decades and repeated for far too long the absurd claim that it was "transitory" even as mounting evidence showed otherwise. He blamed supply-side disruptions long after ports had reopened and goods were moving.
