The last time a U.S. president pressured the Federal Reserve like this was Nixon in 1971, two years later the U.S. entered the stagflation era

Trump is using a series of tweets to threaten the independence of the Federal Reserve, and the last time a U.S. president exerted such pressure on the Federal Reserve dates back to 1971, on the eve of the Great Stagflation in the United States.

In 1971, the U.S. economy was already facing the dilemma of "stagflation," with an unemployment rate of 6.1% and an inflation rate exceeding 5.8%, while the international balance of payments deficit continued to widen. To secure re-election, President Nixon exerted unprecedented pressure on then-Federal Reserve Chairman Arthur Burns.

White House records show that in 1971, Nixon's interactions with Burns significantly increased, especially in the third and fourth quarters of 1971, where their formal meetings reached 17 times per quarter, far exceeding the usual communication frequency.

This intervention manifested in policy operations as: that year, the U.S. federal funds rate plummeted from 5% at the beginning of the year to 3.5% by the end of the year, and the growth rate of M1 money supply reached a post-World War II peak of 8.4%.

In the year the Bretton Woods system collapsed and the global monetary system underwent dramatic changes, Burns' political compromises laid the groundwork for the later "Great Inflation," which was only resolved after Paul Volcker significantly raised interest rates in 1979.

As a result, Burns bore the historical blame. Today's Powell certainly does not want to repeat Burns' fate.

Burns' Compromise: Political Interests Over Price Stability

In 1970, Nixon personally nominated Arthur Burns as Chairman of the Federal Reserve. Burns was an economist from Columbia University and had served as Nixon's economic advisor during his campaign, and the two had a close personal relationship. Nixon had high hopes for Burns—not as a guardian of monetary policy, but as a "cooperator" in political strategy.

At that time, Nixon faced immense pressure to secure re-election in the 1972 election, while the U.S. economy had not yet fully recovered from the recession of 1969, and unemployment remained high. He urgently needed a wave of economic growth, even if it was based on the false prosperity created by "easy money."

Thus, he continually pressured Burns, hoping the Federal Reserve would lower interest rates and increase the money supply to stimulate growth. Internal White House recordings documented multiple conversations between Nixon and Burns.

On October 10, 1971, in the Oval Office, Nixon told Burns:

“I don’t want to go out of town fast… If we lose, this will be the last time conservatives govern Washington.”

He hinted that if he failed to secure re-election, Burns would face a future dominated by Democrats, and the political atmosphere would change drastically. In response to Burns' attempts to delay further easing policies by claiming that "the banking system is already quite loose," Nixon directly rebutted:

“The so-called liquidity problem? That’s just bullshit.”

Shortly thereafter, in a phone call, Burns reported to Nixon: “We’ve lowered the discount rate to 4.5%.” Nixon responded:

"Good, good, good... You can lead 'em. You always have. Just kick 'em in the rump a little."

Nixon not only pressured on policy but also made clear statements regarding personnel arrangements. On December 24, 1971, he told White House Chief of Staff George Shultz:

"Do you think we've influenced Arthur enough? I mean, how much more pressure can I put on him?"

"If I have to talk to him again, I’ll do it. Next time I’ll just bring him in."

Nixon also emphasized that Burns had no authority to decide on the appointments to the Federal Reserve Board:

"He needs to understand, this is just like Chief Justice Burger... I'm not going to let him name his people."

These dialogues come from White House recordings, clearly demonstrating the U.S. President's systematic pressure on the central bank chairman. Burns indeed "complied" and defended his actions with a set of theories.

He believed that a tight monetary policy and the resulting rise in unemployment were ineffective in curbing the inflation of the time, as the roots of inflation lay in factors beyond the Federal Reserve's control, such as unions, food and energy shortages, and OPEC's control over oil prices.

From 1971 to 1972, the Federal Reserve lowered interest rates and expanded the money supply, driving a brief economic boom, which also helped Nixon achieve his re-election goal.

However, the cost of this "artificially created" economic prosperity soon became apparent.

The "Nixon Shock" Bypassing the Federal Reserve

Although the Federal Reserve is the implementing agency of monetary policy, when Nixon announced the "suspension of the dollar's convertibility into gold" in August 1971, he did not take into account Burns' opposition.

From August 13 to 15, 1971, Nixon convened 15 core aides for a closed-door meeting at Camp David, including Burns, Treasury Secretary Connally, and then Deputy Undersecretary of International Monetary Affairs Volcker.

During the meeting, although Burns initially opposed closing the dollar-gold exchange window, under Nixon's strong political will, the meeting directly bypassed the Federal Reserve's decision-making process and unilaterally decided to:

Close the dollar-gold exchange window and suspend the right of foreign governments to exchange dollars for gold;

Implement a 90-day wage and price freeze to curb inflation;

Impose a 10% surcharge on all taxable imported goods to protect U.S. products from exchange rate fluctuations.

This series of measures, known as the "Nixon Shock," undermined the foundation of the Bretton Woods system established in 1944, leading to a surge in gold prices and the collapse of the global exchange rate system Initially, wage and price controls suppressed inflation in the short term, with U.S. inflation held at 3.3% in 1972. However, by 1973, Nixon lifted price controls, and the consequences of excessive dollar circulation and supply-demand imbalance quickly became apparent. Coupled with the outbreak of the first oil crisis that same year, prices began to soar.

The U.S. economy soon fell into a rare "double whammy," with the inflation rate reaching 8.8% in 1973 and soaring to 12.3% in 1974, while the unemployment rate continued to rise, forming a typical stagflation pattern.

At this time, Burns attempted to tighten monetary policy again but found that he had already lost credibility.

His reliance on political compromise and non-monetary measures laid the groundwork for the "Great Inflation," until Paul Volcker took office in 1979 and completely "suppressed" inflation with extreme interest rate hikes, allowing the Federal Reserve to regain its independent prestige.

Powell absolutely does not want to be the next Burns

Burns left behind an average annual inflation rate of 7% during his tenure and weakened the credibility of the Federal Reserve.

Internal Federal Reserve documents and Nixon's recordings show that Burns prioritized short-term political needs over long-term price stability, making his tenure a cautionary tale for central bank independence.

Some financial commentators have joked:

"Burns neither committed fraud nor murder, and he wasn't even a pedophile... His only crime was—cutting interest rates before inflation was fully under control."

In contrast, Burns' successor, Paul Volcker, "choked" inflation with a 19% interest rate, creating a severe recession but becoming a hero in Wall Street, economic history, and even in the public eye for ending inflation.

History shows that Americans can forgive a Federal Reserve chairman who causes a recession, but they will not forgive a chairman who ignites inflation.

Powell is well aware of this and absolutely does not want to be the next Burns