POLITICS AND THE FEDERAL RESERVE

Evidence presented here supports a two-part hypothesis that (1) the Federal Reserve is a powerful political entity, not independent of politics, and (2) it preserves its political power by carrying out the monetary policy desired by the President of the United States. This evidence includes the historical record from the Truman to Reagan administrations, politicization of Federal Reserve research, and political lobbying by the Federal Reserve. Formerly secret minutes of the regional Federal Reserve Banks' boards of directors meetings provide source material. The conclusion suggests a more efficient method of translating political signals and a rule for more predictable monetary policy.