Former Fed Chair Janet Yellen: Markets rely on the independence of the Fed

Fed Independence and Market Reaction - Market reaction to potential Fed Chair ouster includes a decline in the dollar's exchange value, an increase in longer-term interest rates, and a stock market decline [2] - Markets rely on the Fed's independence and commitment to price stability and maximum employment when assessing the US economy [3] - Presidential pressure on the Fed to lower interest rates for government financing purposes is disconcerting to markets and can lead to high inflation [3] Historical Context of Fed Independence - Historically, presidents have attempted to pressure Fed chairs, such as LBJ and William Martin in 1965 [5][6] - Richard Nixon's pressure on Arthur Burns led to stagflation, weak growth, high unemployment, and high inflation [7] - Fed's track record over many decades has been successful in maintaining low and stable inflation [12] Current Economic Situation - The US post-pandemic experience saw a surge in price pressures, similar to other developed countries [13] - Inflation is coming down and is close to the Fed's 2% goal, with a strong labor market at 41% unemployment [13] Fed Leadership and Political Influence - Many Fed chairs have had past experience in the White House, which is natural as presidents gain confidence in their judgment [10] - Fed chairs should make fact-based judgments and pursue congressionally mandated goals of price stability and maximum employment [10][11] - Fed chairs need to stay out of politics and avoid succumbing to short-term political pressures, behaving in a nonpartisan way [12]