The last time a U.S. president exerted such pressure on the Federal Reserve was Nixon in 1971, and two years later, the United States entered the stagflation era.
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The last time a U.S. president exerted such pressure on the Federal Reserve was Nixon in 1971, and two years later, the United States entered the stagflation era.
Today's Powell absolutely does not want to repeat Burns' fate.
Navigating Web3 tides with focused insightsAuthor: Ye Zhen, Wall Street Journal China
Trump is using tweet after tweet to threaten the independence of the Federal Reserve. The last time a U.S. president exerted such pressure on the Fed was in 1971—on the eve of America’s great stagflation era.
In 1971, the U.S. economy was already facing a "stagflation" crisis, with unemployment reaching 6.1%, inflation breaking through 5.8%, and the current account deficit expanding continuously. Seeking re-election, President Nixon placed unprecedented pressure on then-Fed Chair Arthur Burns.
White House records show that in 1971, interactions between Nixon and Burns increased significantly—especially during the third and fourth quarters, when they held as many as 17 formal meetings per quarter, far exceeding normal communication frequency.
This intervention manifested itself in policy terms: that year, the federal funds rate dropped sharply from 5% at the beginning of the year to 3.5% by year-end, while M1 money supply growth hit a post-WWII peak of 8.4%.
In this year of the collapse of the Bretton Woods system and global monetary upheaval, Burns’ political concessions laid the groundwork for the subsequent "Great Inflation," which would not be tamed until Paul Volcker dramatically raised interest rates after 1979.
Burns thus carried the burden of historical criticism. Today, Powell absolutely 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, an economist from Columbia University and economic advisor during Nixon’s presidential campaign, had a close personal relationship with Nixon. Nixon expected much from Burns—not as a guardian of monetary policy, but as a collaborator in political strategy.
At the time, Nixon faced immense pressure to win re-election in the 1972 presidential race. The U.S. economy had not fully recovered from the 1969 recession, and unemployment remained high. He desperately needed economic growth—even if it meant creating a false boom through monetary easing.
He repeatedly pressured Burns, urging the Fed to cut rates and increase money supply to stimulate growth. Internal White House recordings captured 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 ever run Washington."
He implied that if he failed to secure re-election, Burns would face a future dominated by Democrats, with a completely transformed political landscape. When Burns tried to delay further easing by citing that "the banking system is already quite loose," Nixon directly rebuked him:
"Liquidity problem? That’s just bullshit."
Soon after, in a phone call, Burns reported to Nixon: "We’ve lowered the discount rate to 4.5%."
Nixon responded:
"Good, good, good... You lead them. You always have. Just kick 'em in the rump a little."
Nixon didn't just pressure Burns on policy—he made his stance clear on personnel matters too. 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 necessary, I’ll talk to him again. Next time I’ll just bring him in."
Nixon also emphasized that Burns had no authority over appointments to the Fed Board:
"He needs to understand—this isn’t like Chief Justice Burger... I’m not going to let him name his people."
These dialogues, drawn from White House tapes, clearly reveal the systematic pressure exerted by the U.S. president on the central bank chair. And Burns indeed complied—justifying his actions with an intellectual framework of his own.
He argued that tight monetary policy and the resulting rise in unemployment were ineffective in curbing inflation because inflation stemmed from factors beyond the Fed’s control—such as labor unions, food and energy shortages, and OPEC’s grip on oil prices.
From 1971 to 1972, the Fed cut interest rates and expanded the money supply, fueling a brief economic boom—and helping Nixon achieve his re-election goal.
But the price of this "artificially created" prosperity quickly became apparent.
The “Nixon Shock” That Bypassed the Fed
Although the Federal Reserve was the executor of monetary policy, in August 1971, Nixon unilaterally announced the suspension of dollar-gold convertibility, disregarding Burns’ objections.
From August 13–15, 1971, Nixon convened 15 key advisors—including Burns, Treasury Secretary John Connally, and Undersecretary of International Monetary Affairs Paul Volcker—for a secret meeting at Camp David.
Despite Burns’ initial opposition to closing the gold window, under Nixon’s overwhelming political will, the meeting bypassed standard Fed decision-making procedures and unilaterally decided to:
Close the gold window, suspending foreign governments’ right to exchange dollars for gold;
Implement a 90-day freeze on wages and prices to curb inflation;
Impose a 10% surcharge on all taxable imports to protect American goods from currency fluctuations.
This series of measures, known as the "Nixon Shock," shattered the foundation of the Bretton Woods system established in 1944. Gold prices soared, and the global exchange rate system collapsed.
Initially, wage and price controls suppressed inflation—the U.S. inflation rate was kept at 3.3% in 1972. But by 1973, Nixon lifted price controls, and the consequences of excessive dollar liquidity and supply-demand imbalances rapidly emerged. Compounded by the outbreak of the first oil crisis that same year, prices began skyrocketing.
The U.S. economy plunged into a rare "double whammy": inflation reached 8.8% in 1973 and soared to 12.3% in 1974, while unemployment continued to climb—creating a classic stagflation scenario.
By then, when Burns attempted to tighten monetary policy again, he found he had already lost credibility.
His earlier political compromises and reliance on non-monetary measures had sown the seeds of the Great Inflation. It wasn’t until Paul Volcker took office after 1979 and crushed inflation with extreme rate hikes that the Fed regained its independent stature.
Powell Never Wants to Be the Next Burns
Burns left behind an average annual inflation rate of 7% and severely weakened the Fed’s credibility.
Fed internal documents and Nixon’s tapes reveal that Burns prioritized short-term political demands over long-term price stability—a textbook case of what central bank independence should not be.
A financial commentator once joked:
"Burns didn’t commit fraud, didn’t kill anyone, wasn’t even a pedophile… His only crime was cutting rates before inflation was fully under control."
In contrast, Burns’ successor Paul Volcker choked inflation with a 19% interest rate—triggering a severe recession, yet emerging as a hero in the eyes of Wall Street, economic historians, and the public for ending inflation.
History has shown that Americans can forgive a Fed chair who causes a recession—but they will never forgive one who ignites inflation.
Powell understands this perfectly. And he absolutely does not want to become the next Burns.
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