Over the last couple of years, people have been questioning whether the Fed is “running out of ammunition” to use when it needs to combat the next economic downturn. Over the last 60 years or so, it has been taken as an article of faith that the Fed has the power, ability, and mandate to act to “steer” the economy. If the economy is overheating, increase interest rates to slow it down. If the economy is starting to stall, lower interest rates to encourage lending and fuel economic activity. Money could be created if the economy needed a jump start, or removed to reduce inflation. It all seemed so easy and simple, and indeed has been thought to work by central banks all over the world.

However, looking back on the history of the last 20 years or so, it is worth asking whether politics has had a lot to do with Fed decision making rather than hard economic analysis. I am not suggesting that politics has been the only factor, but one would be remiss not to consider the possibility that the Fed has been trying to stabilize an economy and an economic system that simply hasn’t been working for a large swath of the country.

In the mid-1990s, the Fed under Alan Greenspan seemed ready to lower interest rates every time the stock market started to tank. Basically, the idea developed that the Fed would (and could) step in and save the day if the market got too bad. This idea, and the fact that the Fed didn’t act to stop the stock market bubble in 2000, makes it worth asking whether politics (i.e. letting the stock market crash would not have been good optics) made the Fed timid.

 As the economy started to deteriorate in 2000, in part due to the stock market bubble popping, Greenspan did act aggressively to lower interest rates and the economy eventually started to recover. But the low rates fueled a real estate bubble, and even Greenspan concedes that he left rates too low. The popping of the real estate bubble and the resulting economic are legendary. And while the economic numbers have recovered, the economy for many people really hasn’t. Meanwhile, the Fed stands there, reluctant to raise rates, and perhaps “out of ammunition” as some assert.

In taking the last 20 years in total and looking at the present instability, it almost seems like the Fed and the government in general, has been trying to manufacture some artificial prosperity because the economy hasn’t been able to provide it for a large swath of the electorate. This is not to say that there has been some secret cabal in Washington and New York that has been working nefariously behind the scenes. However, politics and maintaining the status quo (i.e. stability) is certainly a goal, and not necessarily a bad one. But the fact is that most Americans with an average household income of $50,000 are not going to be able to save enough for retirement. If you are going to need between $500,000 and $1,000,000 in liquid assets (depending on where you live in the country), you are talking about having to save 10 to 20 years of pre-tax income in order to accomplish this. You throw in taxes and kids and a house and there is simply no way this is going to happen without some help from the stock market or your house appreciating. In many ways, Fed action with the benefit of hindsight can be seen as effort to try and help the middle class to overcome the fact that wage growth and job opportunities haven’t been as plentiful as they were at an earlier time.

Today, however, the Fed really doesn’t seem to have the power to steer the economy any longer. Seven years into an economic expansion, people think that the country is on the wrong track (and have for a long time) and many people have effectively been shut out of the labor force due to being unemployed for so long. There is an expansion, but many of the people who felt the last economic expansion aren’t feeling this one. The political result of this failure is that people are willing to try anything to get an economy back that works for them. The political result is Donald Trump.