The Fed Is Powerful... That's The Problem

The Fed Is Powerful... That's The Problem

Matthew Blakely

Whenever the Federal Reserve releases its meeting minutes, a crowd of analysts rush to dissect every comma and qualifier. But in a country that prides itself on free markets and capitalist dynamism, why do we hang on the every word of an exclusive club of central planners?

Markets shouldn’t have to interpret the tone of Jerome Powell’s press conferences or scrutinize the footnotes of bureaucratic transcripts.

But they do—because we’ve built an economy where interest rates, the price of credit, and the flow of capital are controlled not by supply and demand, but by a small committee of bankers and economists.

The problem isn’t just Powell. 

The problem is that we’ve come to accept central planning at the heart of a supposedly free-market system.

What is an interest rate, if not a price? It’s simply the price of borrowing money. Every time the U.S. Treasury sells a bond, it must pay a price—an interest rate—to attract lenders. The same is true for corporations issuing debt, businesses taking out loans, or individuals financing homes and cars. Like any other price in a market economy, interest rates should respond to supply and demand.

When demand for borrowing rises, interest rates should increase to ration limited funds. When the supply of savings grows, rates should fall to reflect greater availability of capital. These aren’t exotic economic theories—they’re the same price signals that govern what we pay for groceries, smartphones, or pencils.

And yet, interest rates occupy a unique place in our economy—treated as too vital to be governed by market forces. Instead of allowing borrowers and lenders to determine rates naturally, we give this task to the Federal Reserve: a small group of economists with disproportionate influence over market movements through manipulating the supply and demand for U.S. Treasurys.

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