JACKSON HOLE, WYO. — They converged last week on a red barn here in the shadows of the Grand Tetons, a small but passionate group of free-market thinkers and conservative activists hoping to convince the Republican Party that the Federal Reserve is ruining the economy.
That message is easily lost amid the latest Iowa poll numbers, the heated rhetoric over immigration and the megawatt personality of billionaire presidential candidate Donald Trump. It has been six years since the end of the Great Recession, and the visceral outrage from the financial crisis that propelled former Texas congressman and “End the Fed” author Ron Paul’s run for the White House has faded. No one is threatening — as then-Texas Gov. Rick Perry did in his last presidential bid — “ugly” treatment for the staid leader of the central bank. The economy in general, never mind the Fed, has taken a backseat in this election cycle.
But for the roughly 175 people at the Diamond Cross Ranch, the fight against the Fed has never been more timely: The era of easy money unleashed after the financial crisis appears to be coming to a close as the nation’s central bank prepares to raise its target interest rate for the first time in nearly a decade. It will be a moment of truth, conservatives here say, when the economy crumbles without the central bank’s support and the folly of the Fed’s policies will be revealed.
“The easy part is bringing interest rates to zero,” famed investor and Fed skeptic Peter Schiff told the crowd in Jackson Hole. “Anybody can start taking drugs. Try stopping.”
That is why conservatives staged their first-ever conference here, sponsored by the American Principles Project, timed to coincide with an elite gathering of top central bank officials and international economic policymakers just 10 miles away: to warn the Fed that they are watching and to get the rest of the Republican Party to pay attention.
“No one seeking our nation’s highest office — and there are many, at my last counting — can seriously contend without addressing these issues,” Heritage Foundation President Jim DeMint, a former senator from South Carolina, told the conference-goers. “Gaining public support for changing our destructive monetary policy will be challenging, and it will require reformers to speak in terms Americans understand, and for reformers to understand that this will be a long and difficult battle that we can and must win.”
The Fed has long been a source of ire for conservatives. Many trace their distrust of the Fed back to Bretton Woods, the post-World War II accord that led to the abandonment of gold as the backing of U.S. currency. Others argue the problem started in 1913, with the establishment of the central bank itself. Both exemplified the unnecessary intrusion of government into the free markets undergoing necessary, if painful, adjustments.
But the 2008 financial crisis ignited a new level of unrest as the Fed pushed the limits of its powers in its efforts to avert a full-fledged economic depression. As the central bank slashed its target interest rate to zero and its balance sheet ballooned to $4 trillion, public sentiment swelled against the historically insular institution.
Among the criticisms: The Fed was keeping interest rates artificially low and fueling speculative bubbles. The helicopter-drop of money known as quantitative easing did little more than inflate stock markets and fund Washington’s deficit spending. The bailout of big banks left them bigger than ever. A Gallup poll during the height of the recession found Americans ranked the Fed last among government agencies in performance — behind even the IRS.
“The Fed didn’t save us from the financial crisis. They interrupted it,” Schiff said at the conference. “They just kicked the can down the road … and now we’ve caught up with it.”
That dissatisfaction initially drove momentum behind Paul’s efforts to end the Fed, and his 2009 book that used the slogan as its title made the New York Times' bestseller list. After he retired from Congress following his unsuccessful presidential bid, his son, Kentucky Sen. Rand Paul, shifted the focus to auditing the Fed and is now running for the White House himself.
Neither of their proposals have passed, but they helped spawn an array of related bills seeking to constrain the Fed’s powers.
Senate Banking Committee Chairman Richard Shelby has proposed requiring more detailed reports from the central bank and giving more power to a broader array of Fed officials. His counterpart in the House, Financial Services Committee Chairman Jeb Hensarling, has sponsored a bill that would force the central bank to follow set rules for monetary policy, making the unconventional actions it pursued after the crisis more difficult. Texas Rep. Kevin Brady has pushed to create a Centennial Monetary Commission to examine the Fed’s performance. A bill from New Jersey Rep. Scott Garrett takes aim at the central bank’s ability to bail out banks.
Lawmakers are also using the bully pulpit to tighten the screws on the central bank. Hensarling is conducting an investigation into allegations that the Fed leaked information to a consulting firm Medley Global Advisors, issuing a subpoena to Fed Chair Janet Yellen. The Justice Department is now looking into the case as well.
Together, the efforts represent an evolution of the Republican critique of the central bank -- "beyond the bumper stickers," as Brady described it in an interview.
But the flurry of activity in Washington has not caught fire on the GOP presidential campaign trail. The economy was barely mentioned in the party’s first prime-time debate on Fox News last month. Though Rand Paul has continued his push to audit the Fed, he did not bring it up during the debate.
For his part, New Jersey Gov. Chris Christie has issued only a vague warning that the central bank’s easy-money stance could “come home to roost,” according to Reuters. In a Bloomberg TV interview last month, Trump briefly blamed the Fed’s low-interest rates for creating a financial bubble. Meanwhile, retired neurosurgeon Ben Carson mistook the longtime Fed chairman Alan Greenspan for a secretary of the treasury.
Even Perry, who during his previous presidential bid called the central bank’s stimulus efforts “treasonous” and said then-Fed Chairman Ben Bernanke would be treated “pretty ugly down in Texas,” has stayed largely mum on the issue, despite the fact that the Fed has pumped more than $1 trillion into the economy since his last campaign.
The silence, said Steve Lonegan, who organized the Jackson Hole conference, is a mistake.
“Conservatives have better wake up to the implications of monetary policy,” said Lonegan, who works for the American Principles Project. “My goal is to wake up the country, wake up the center-right.”
The agenda featured panels on “the monetary status quo and its consequences” and “the new information theory of money.” Speakers included conservative fixtures such as the Cato Institute and Heritage Foundation and unorthodox investors such Schiff, head of Euro Pacific Capital, who predicted the financial crisis. Lonegan said he also invited every Republican candidate for president -- and some of the Democrats running as well.
None of them showed up.
Most economists believe the Fed’s actions during the financial crisis were crucial to avoiding another Great Depression. The central bank has cast its consideration of an interest rate increase as a sign of confidence in the strength of the recovery. The unemployment rate has dropped from a peak of about 10 percent to just over 5 percent. The inflation that many conservatives predicted would take off amid unprecedented Fed stimulus has failed to emerge. In fact, the big question facing central bank officials and policymakers gathered in Jackson Hole was why inflation is so low.
Yet some prominent academics — and even some Fed officials — are sympathetic to at least parts of the critiques presented at the conservative’s counter-conference. Carnegie Mellon University’s Allan Meltzer, an acclaimed historian of the central bank, urged the Fed to adopt Hensarling’s proposal for establishing a monetary policy rule. If officials don’t act, Congress might just do it for them, he told his colleagues at the central bank symposium.
“The Fed is making a huge mistake,” Meltzer warned.
The pressure on the Fed is not just coming from the right. In fact, Lonegan said the American Principles Project -- a think tank funded by wealthy investor Sean Fieler and more commonly associated with its opposition to gay marriage and abortion -- came up with the idea for the conference after liberal demonstrators showed up at the central bank's conference here last year, carrying signs and confronting Yellen.
The demonstrators were back in Jackson Hole this year, part of a campaign called Fed Up and led by the Center for Popular Democracy. They urged the central bank to keep its target rate at zero until the nation’s economic recovery is felt more broadly, catching the attention of White House chief economic adviser Jason Furman, who delivered an impromptu speech to the workers, and Fed governor Lael Brainard, who attended one of the group’s “teach-ins.”
“They’re organized. They’re sophisticated. They’re engaged on monetary policy,” Lonegan said of the left-leaning demonstrators. “Where is the right? Where are Republicans? Where are conservatives? Our side is asleep at the wheel.”
Top central bank officials have met separately with their critics on the left and the right. Representatives from both groups characterized the conversations as productive, although it remains unclear whether any of their arguments will sway the direction of interest rates.
But the Fed has taken a hard line on the bills under consideration on Capitol Hill, decrying the efforts as an assault on its ability to chart the course of the economy free from political interference. The proposals, they argue, could also constrain the Fed’s tool kit when the next crisis hits.
“I suppose I would ask, ‘What exactly is the problem?’ ” Yellen said at a news conference in June. “To my mind, the Fed is accountable, and we work well as an institution. I’m not certain what the problem is that needs to be addressed.”
Her answer came off as dismissive to some conservatives, and the Fed has had a rocky relationship with the Republican-led Congress. Yellen and two others in the central bank’s five-member board of governors previously served in Democratic administrations. Governor Jerome Powell, who worked under President George H.W. Bush, has been dispatched to Capitol Hill to help foster better relations. According to her public calendar, Yellen met with Republican Reps. Patrick McHenry, Steve Pearce and Kevin McCarthy ahead of her testimony before the Financial Services Committee in July.
The irony is that Fed is actually moving, ever so slightly, in the Republican direction. Officials expect to raise the target interest rate this year as the economy continues to strengthen — perhaps as soon as next month. And many at the central bank expect the Fed will eventually return to more traditional policies that stand a better chance of appeasing its critics on the right.
“Once [Fed officials] start to raise rates, they’re going to lose a lot of the friends on the left,” said Mark Calabria, head of financial regulations at the Cato Institute, which recently set up a think tank on central banking. “They’re really going to find themselves out there with no allies in the middle of next year.”
During a break in the conference, computer technician Charles Curley stepped outside the barn and into a majestic vista of the Grand Tetons bathed in afternoon sunlight. Wearing cowboy boots and a Wyoming state pin on his jacket lapel, Curley recounted how he had watched the country’s entire monetary system change once, when the gold standard was abandoned in 1971. It could certainly change again in his lifetime.
The fight over the Fed — like monetary policy itself — often operates with long and variable lags.
“I”m not sure that they’ll get it on the radar in time for 2016. That’s all right,” he said. “We’ll get it on the radar for 2020 or 2024.”