A reminder that for all the "Trump is just Reagan" nonsense:
President Donald Trump on Thursday met with Federal Reserve Chair Jerome Powell for the first time in his second term, scolding him for not lowering borrowing costs. Powell maintained that any decisions won’t be based on the president’s demands.
The meeting, which comes after months of unrelenting attacks from Trump against the Fed chief, took place at the White House and was at Trump’s request.
VERSUS
Too much money results in inflation. Such, at least, is the theory. In practice, the measurement of money supplies is arcane and difficult, and Volcker and the six governors of the Fed were often accused by their critics of mismeasuring it. By 1982 the economy had contracted so much that the interest-sensitive housing industry was working at its lowest pace since 1946. Automobile sales had fallen to a twenty-year low, and manufacturers and farmers were crying for relief. The cover of the January-February 1982 issue of Tennessee Professional Builder consisted of a wanted poster of Volcker and the other Fed governors, charging them with “premeditated and cold-blooded murder of millions of small businesses” and “kidnaping (and holding for ransom) the American dream of home ownership.” By then, Don Regan was openly attacking Volcker for holding back economic recovery. The supply-siders wanted his scalp even more than they wanted Stockman’s. Jack Kemp called for Volcker’s resignation and made common cause with Democrats who threatened legislation that would force the Fed to lower interest rates.
Reagan, however, was firmly on Volcker’s side, even though this was not widely understood outside the White House. Three days after his inauguration, Reagan had startled the Secret Service by walking out the front door of the White House and down Pennsylvania Avenue to the Treasury Building, where he lunched with Volcker. Aides who attended the lunch would never forget it. Reagan was barely seated before he said to the chairman, “I was wondering if you could help with a question that’s often put to me. I’ve had several letters from people who raise the question of why we need any Federal Reserve at all. They seem to feel that it is the Fed that causes much of our monetary problems and that we would be better off if we abolished it. Why do we need the Federal Reserve?”
Martin Anderson, sitting directly across from Volcker, observed that “his face muscles went slack and his lower jaw literally sagged a half-inch or so as his mouth fell open. For several seconds he just looked at Reagan, stunned and speechless. It is a good thing Volcker had not had time to light one of his long cigars because he might have swallowed it.” Long afterward, Anderson told me that he believes Reagan’s question was inspired by the theories of iconoclastic conservatives who have argued in favor of a self-regulating system in which currency would be issued by private banks. Reagan made no pretense to expertise on the subject, though he had been exposed to the theories in letters from friends and stories in right-wing publications. He also had no concern about advertising his ignorance...
Volcker, however, recovered quickly from his surprise, and gave a good account of himself. Acknowledging that others held the same concerns Reagan had expressed, Volcker said, “I think you can make a very strong case that the Federal Reserve has operated well and has been very important to the stability of our economy.” He then lectured Reagan briefly on the Fed’s role in regulating the money supply. His answer apparently satisfied the president, who never raised the question again.
Over the next two years Volcker met periodically with Reagan, always at the White House. Anderson, who attended all the meetings before he left the administration in 1982, said Volcker did most of the talking, speaking directly to the president and illustrating his points with charts and graphs. “Reagan never asked him to either ease or tighten the money supply,” Anderson said. “I think Volcker very much appreciated the lack of direct pressure. Given that Volcker was a Democrat appointed by President Carter, a surprising amount of goodwill seemed to develop between the two.” In part this may have been because Reagan was willing to allow Volcker more running room than Carter had given him. The Carter White House had pressured Volcker to adopt credit controls, which the Fed did in March 1980. Gross national product dropped at a 9 percent annual rate in the second quarter of 1980, the steepest decline in modern history. The Fed backed away from credit controls in June, and the last six months of the year witnessed one of the biggest surges in the money supply in history. “Carter whipsawed Volcker,” said Niskanen. “Reagan didn’t understand monetary policy any better than Carter did, but he gave Volcker more leeway."
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Reagan was asked at a January 19 (1982) news conference about the reasons for declining capital investment. “I think there’s a little caution at work and perhaps part of it is waiting to see what the Federal Reserve system is doing, because there’s been an upsurge, for example, in the money supply just recently, which sends, I think, the wrong signal to the money markets,” he said. “In other words, they want to be more sure that interest rates and inflation are going to continue coming down as they have been.” When a reporter followed up by asking Reagan if he agreed with calls for Volcker’s resignation, the president said he couldn’t respond to the question “because the Federal Reserve System is autonomous.
(Lou Cannon, "President Reagan: The Role of a Lifetime," 2001: 250-5)
