Due to a healthy US economy, the Federal Reserve has been raising interest rates. The Fed’s Board of Governors believes this is necessary so the economy doesn’t overheat and inflation doesn’t get out of hand.
Donald Trump doesn’t like it. He thinks it is hurting the stock market, and has reportedly looked into whether he can fire Federal Reserve chairman Jerome Powell. This would threaten the Fed’s cherished independence from politicians. White House officials are now trying to set up a meeting between Trump and Powell to hash out their differences. Former Federal Reserve chair Alan Greenspan told the Wall Street Journal that such a meeting, if it involves Trump trying to influence Fed policy, is a bad idea (paywall).
But why is it so important the Fed be independent?
The following video, which explains the reasons for central bank independence, won the 2011 National Economic Education Video Contest held by the Fed’s St. Louis branch. It is silly and lo-fi, but it also charmingly demonstrates why a president exerting control over the Federal Reserve would probably be bad news.
The video was made by students at Vassar College, in the state of New York. Maziar Kazemi, one of the creators, told Quartz over email that the group entered the competition for fun, not as part of any class. Kazemi, who is now getting his PhD in financial economics at the Massachusetts Institute of Technology, stands by the video’s message.