Revisiting Dukakis and the Fed’s Dilemma

Back in July 1988, Mike Dukakis was in a promising position in the presidential race against George H.W. Bush, but that didn’t last long.

Not long after, he made a rather peculiar choice to pose for a photo onboard a tank, sporting an army helmet that looked a bit awkward on him.

This moment was seized upon by the GOP, leading to the infamous “tank ads” that ultimately hurt Dukakis’s campaign significantly.

Public perception at the time seemed to agree that the image of a man trying too hard to project toughness made him unsuitable for the presidency.

Fast forward to a recent Thursday when I witnessed a similarly strange scene: Jerome Powell, the Federal Reserve Chairman, wearing an ill-fitting helmet while touring the Federal Reserve’s extravagant new $2.5 billion headquarters with President Trump.

It’s clear Trump brought Powell there to send a message. After all, he’s had quite a bit of tension with the Fed, especially given their reluctance to further stimulate the economy with lower interest rates.

However, watching Powell in that moment felt a little awkward. As much as Trump stood tall and confident, Powell seemed out of place, like he’d stepped into a different world.

The contrast was striking—Trump’s stature dominated, while Powell appeared a bit lost, especially when they discussed the massive cost overruns associated with the building project.

Sure, Powell could have pointed out that Trump had inflated those figures, but really, the total cost was still quite staggering.

This is just another day in the ongoing drama of Trump’s presidency, where he often has the upper hand in public appearances. Powell, on the other hand, didn’t seem to have much room to maneuver.

Reflecting on Powell’s position, it’s hard not to see parallels with Dukakis. There’s a sense that Trump could be onto something—perhaps Powell needs to consider moving on faster than he has.

The Importance of Independence

Now, I find it challenging to express this fully. Even with rising tariffs that could lead to inflation, I’m not entirely convinced we should cut interest rates just yet.

Moreover, political independence is crucial for the Fed, which is precisely why investors fund our debts and sustain our way of life.

The Federal Reserve Act, established in 1913, grants the Fed substantial autonomy precisely to prevent scenarios wherein a chairman, acting under political pressure, could irresponsibly lower interest rates for short-term gains. Such decisions could sink our economy into inflation and subsequent crisis.

Think about it—if we can’t sell our debt, it could lead to a financial catastrophe worse than the 2008 crisis.

Yet, standing up for the Fed’s independence based on Powell’s record seems to be a tough sell. Trump appointed Powell and two other members during his first term, aiming for a push toward lower tax rates amidst a booming economy.

Initially, Powell resisted lowering rates, but eventually, he caved, cutting them in a move that now looks questionable.

This lack of independence is concerning. As rates were reduced, the Fed diminished its options for providing liquidity during crises like the COVID lockdown.

Continuous Money Printing

Secondly, during the pandemic, Powell effectively printed money as though it was limitless, tapping into the Fed’s resources without restraint.

He continued this even as businesses reopened, keeping interest rates near zero throughout Biden’s administration—he was reappointed by Biden for another term ending next year.

Meanwhile, Biden’s spending sprees have driven our debts sky-high, paving the way for inflation, while Powell downplayed the risks of such a liquidity surplus.

He seems to be navigating this crisis in tandem with Treasury Secretary Janet Yellen, referring to inflation as “temporary.” But, of course, that turned out to be misleading—inflation hit 9.1% before Powell decided to raise rates.

This has been a significant policy misstep on his part. Tackling inflation is critical, especially given its impact on the working-class citizens who feel the pinch directly.

I find myself in a bit of a paradox here—while I agree with Trump’s call to remove Powell, I recognize that his reasoning may be flawed. The tariffs Trump supports could create even more price spikes and lead to further rate cuts.

If Trump had acted sooner to replace Powell, it may have ignited a fierce constitutional struggle.

Nevertheless, defending Powell’s lengthy track record—especially regarding monetary policy and those glaring missteps—grows increasingly difficult. At this point, it feels like a change might just be for the best.