What happens in a showdown between the President and the Federal Reserve chair–and how that affects the rest of us

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Under President Trump, it is possible, for the first time in a generation, to imagine a concerted attack on the central bank. Conceivably, the United States could repeat the story of the mid-1960s and ’70s, when a 15-year period of central-bank independence was brought to an end by presidential bullying. Back then, Lyndon B. Johnson summoned the Fed chairman, William McChesney Martin Jr., to his Texas ranch and shoved him around the living room while proclaiming that low interest rates were imperative in a time of war. “Boys are dying in Vietnam and Bill Martin doesn’t care!” he yelled. Martin ultimately delivered the looser money that Johnson wanted. Richard Nixon followed up by publicly smearing Martin’s successor, Arthur F. Burns, until he, too, complied. Because Martin and Burns, unlike Greenspan, buckled, the U.S. went through the most extreme bout of inflation in its peacetime history.

pub. 06/2017

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