Nixon's Rare Achievement: The First President to Sway the Fed on Interest Rates

For over seven decades, U.S. presidents have attempted to influence the Federal Reserve's decision on interest rates. However, only one president succeeded in doing so without drawing public attention – Richard M. Nixon.

A Legacy of Policy Influence

Nixon's accomplishment is a testament to his strategic thinking and policy expertise. During his presidency, which spanned from 1969 to 1974, he sought to reduce unemployment and stimulate economic growth. To achieve this goal, he quietly pressed the Federal Reserve to keep interest rates low.

The Background: Economic Context of the Late 1960s and Early 1970s

The late 1960s and early 1970s were marked by significant economic challenges. The U.S. economy was facing high inflation, which was exacerbated by a combination of factors including:

• Vietnam War: The prolonged conflict led to increased government spending and monetary policy decisions that fueled inflation.
• Oil Embargo: The 1973 oil embargo further worsened the economic situation, leading to higher energy costs and prices for goods and services.
• Monetary Policy: The Federal Reserve's response to these challenges was limited by the gold standard, which tied the value of the dollar to the amount of gold it held.

Nixon's Strategy: Low Interest Rates

To address these economic issues, Nixon turned to the Federal Reserve, seeking to reduce interest rates. His strategy involved:

• Building Relationships: Nixon established personal relationships with key Fed officials, including Chairman Arthur Burns and Governor William Miller.
• Policy Briefings: The president received regular policy briefings from his advisors, which helped him understand the implications of different monetary policy decisions.
• Strategic Leverage: Nixon used his executive powers to influence the Fed's decision-making process. He would often use language that implied a commitment to certain economic goals, such as low unemployment.

The Payoff: Low Interest Rates and Economic Growth

Nixon's efforts paid off when the Federal Reserve began to reduce interest rates in 1969. The resulting economic growth was significant, with:

• Unemployment: Unemployment rates declined from 3.2% in 1968 to 3.5% in 1970.
• GDP Growth: The U.S. GDP grew at an average annual rate of 4.5% between 1969 and 1971.
• Inflation: Inflation rates remained relatively low during this period, averaging around 2%.

The Legacy: A Model for Future Presidents

Nixon's success in influencing the Fed on interest rates is a model that future presidents have studied and attempted to replicate. However, it's worth noting that:

• Transparency: Nixon's actions were not transparent, and his influence over the Fed was not widely acknowledged at the time.
• Controversy: Some critics argue that Nixon's policy decisions were driven by self-interest rather than a genuine concern for economic well-being.

Conclusion

Richard M. Nixon's achievement in swaying the Federal Reserve to keep interest rates low is a rare example of presidential success in shaping monetary policy. While his methods may be seen as opaque or even undemocratic, they reflect his expertise and strategic thinking during a time of significant economic challenge.

Nixon's legacy serves as a reminder that the relationship between presidents and central banks is complex and multifaceted. As future leaders navigate the intricacies of monetary policy, they would do well to study Nixon's approach and consider the implications for their own policy decisions.