"Yet, Monday came, and while gold and silver went vertical, equities stayed calm and the dollar barely drifted. To economist Tyler Cowen, the renowned libertarian from George Mason University and author of the influential Marginal Revolution blog, this lack of market panic is the most revealing part of the drama. It isn't that investors trust the administration's motives; it's that they have already accepted the "ugly little truth" that the Federal Reserve's independence is a relic of a bygone era."
""But to me, the reason markets didn't react more is because we already wrecked the independence of the Fed. That's the ugly little truth behind this story. It was already wrecked." In Cowen's telling, the damage was done years ago, through fiscal policy. Budget deals, tax cuts and a chronic deficit have steadily narrowed the Fed's real freedom to act, regardless of its formal mandate."
A DOJ criminal investigation targeted a $2.6 billion renovation of the Federal Reserve's Washington headquarters and was characterized as a "pretext" to push for interest-rate cuts. Despite the probe, precious metals spiked while equities remained calm and the dollar barely moved. Observers interpret the muted market response as evidence that central-bank independence has already been undermined by fiscal realities. Years of budget deals, tax cuts and chronic deficits have constrained the Fed's practical policy choices. Over time, monetizing debt and tolerating higher inflation may become politically preferable to higher taxes, further eroding monetary autonomy.
Read at Fortune
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