Could Donald Trump Break the Fed?

Mainstream economists hold sacred the notion that central banks must be shielded from political influence. The U.S. Federal Reserve’s fundamental job is to set interest rates at the optimal level to keep employment high and inflation low. This often requires inflicting short-term pain—such as steeper borrowing costs or temporarily higher unemployment—to avoid even more disastrous outcomes in the long term. Elected officials, the thinking goes, don’t have that kind of patience. With an eye on the next election, they’re liable to keep rates artificially low to juice the economy today at the risk of sending prices spiraling tomorrow. In the worst-case scenarios, such as in contemporary Venezuela, politicians might order the bank to print money to fund spending, leading to hyperinflation.