Any time a Fed president, governor or chairman trots out the trite cliche that the Fed is “apolitical” we can’t help but laugh for one simple reason: not only is the Fed not apolitical, but is very closely ideologically tied with whichever party promotes deficit spending which by definition is inflationary: more deficits mean more debt, means more opportunity for the Fed to show off its “inflation” creating skills; and in a Keynesian world, a stable 2% inflation is the lubricant that drives and stabilizes the financial system – the Fed’s true mandate. There is a reason why central bankers call deflation a “monster” which must be slayed, as per Haruhiko “Peter Pan” Kuroda.
However, it is one thing to note the obvious, it is different to have proof that Fed members have a clear ideological bias. Thanks to recent Fed appointee Lael Brainard, we have just that.
According to Bloomberg, recent Treasury staffer and current Fed Governor Lael Brainard gave $750 in three contributions to Clinton’s campaign between November and January, according to Federal Election Commission records.
For those unfamiliar, some background: Brainard, an Obama administration appointee to a top Treasury post before she joined the the Fed, has strong family ties to Clinton. Her husband, Kurt Campbell, was formerly a top adviser to the former secretary of state, serving as assistant secretary for east Asian and Pacific affairs.
She received the Alexander Hamilton Award for her service at the Treasury. She joined the Fed in June 2014 and has a term that runs until 2026. Lately, as global markets reeled over uncertainties about growth in Asia and emerging markets, her insights into how those events could effect U.S. growth have raised her profile in monetary-policy debates. She’s recently argued for caution on the timing of interest-rate increases in the face of headwinds from abroad.
In other words, she is most likely the one who created the Fed’s “China mandate” – the one which prohibits a rate hikes when one of China’s myriad of asset bubbles is bursting, or on a downtick in the Yuan.
And while Fed officials sometimes identify with either major political party, as Bloomberg correctly notes, “donations to a presidential candidate by a senior policy maker are unusual, particularly at a time when the central bank is trying to guard its independence from politics. The Fed’s authority has been criticized during the campaign, and both Democratic and Republican lawmakers have questioned decisions about regulation and monetary policy.”
And here is the republican soundbite for when the Trump campaign shifts to important things like the Fed:
At a time when Federal Reserve officials are making the case that monetary policy needs to be non-partisan and independent, a sitting governor has given money to Hillary Clinton.
Hardly a glowing endorsement for the apoliticalness, or for that matter intelligence, of the Fed and as Bloomberg’s Craig Torres writes, Brainard’s donations “could provide fuel for Republican narratives about the proximity of the Fed and the board to the Obama administration,” said Sarah Binder, a senior fellow at the Brookings Institution who is writing a book about politics and the central bank.
Some more on the “optics” of Brainard’s inexplicable act:
No other Fed governor has donated to a presidential candidate in this election cycle, according to a search of federal records. Michelle Smith, a Fed spokeswoman, said board members do not engage in partisan political activities, but, like all executive branch employees, may vote and may make campaign contributions under federal guidelines.“
If there is an issue here, it is one of optics,” Binder said. “It is a question of where governors want to draw their own lines and how they want to be perceived.”
House Republicans are trying to get the Fed to abide by policy rules. Last year, they passed the Federal Reserve Oversight Reform and Modernization Act. The bill, which Fed Chair Janet Yellen opposed and hasn’t proceeded into law, would require the Fed to describe their policy rule to Congress, and it would be subject to review by the Government Accountability Office.
Political donations by a sitting Fed governor are not without precedent. Alice Rivlin, who was appointed to the Fed board by former President Bill Clinton and served as vice chairman from 1996 to 1999, donated $500 in 1998 to the Democratic National Committee, FEC records show.
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