Today in Politico, finance reporter Victoria Guida takes a look at the prospects for any meaningful reform that might rein in the Fed’s runaway powers that have expanded far beyond its historical remit in recent years.
It seems the prospects are not good.
For starters, the president-elect has no interest at all in having the Fed do less. As president, Trump has only ever called for lower interest rates, which means he always favored a more activist fed interfering more often in markets. Yes, before he was president, Candidate Trump had criticized the Fed for keeping interest rates too low for too long. That line of thinking quickly evaporated after Trump was sworn in.
Trump has seen to be antagonistic toward Powell, but only because Trump sees Powell as too restrictive on monetary policy. Ridiculously, Powell has managed to obtain a reputation in some corners of Washinton—including, apparently, Trump’s corners—that Powell is some kind of hard-money man. That’s not what Trump wants.
In other words, Trump’s occasional expressions of annoyance with the Fed have nothing to do with any significant change to Fed policy. Thus puts Trump at odds with even the timid inflation hawks found within the GOP right now. Or as Guida puts it:
You might think the election of a president who has spent years lambasting the central bank would provide an opening for Republican ideas to reform the Federal Reserve.
But you’d be wrong. ... Donald Trump and conservative Fed reformers have very different visions.
So, we have virtually no reason to expect any significant Fed reforms from Trump, but the “conservative Fed reformers,” as Guido calls them, aren’t calling for much other than some changes in window dressing.
These alleged reformers are apparently characterized by a nonspecific fondness for the Taylor Rule, which, as we’ve shown here, is a rather squishy “rule” which one could hardly describe as true “reform.”
Even worse, the conservatives who Guida frames as relatively hard-money people differ from Trump primarily in that the conservative reformers prefer the status quo. For example, Guida writes:
“I like the way it’s set up right now,” Sen. Mike Rounds (R-S.D.) said in a scrum with reporters, when I asked him whether Trump should have more of a say in its monetary policy decisions. ...
“The 1913 Act has worked really well,” Rep. Frank Lucas (R-Okla.), who sits on the House Financial Services Committee, told me in another hallway conversation. “If there are suggestions from the new administration that come in, of course we’re going to look at it on the committee. But a certain degree of independence is necessary.”
“The current Fed’s actions on interest rates are simply a reaction to bad economic policies of the Biden administration,” Rep. Bryan Steil (R-Wisc.) said to me. “As we reduce inflation, the Fed’s going to naturally bring rates down. That’s the best approach for us to do that.”
In other words, according to GOP “reformers,” things are fine, and we don’t really need to change anything.
It’s notable, however, that Guida doesn’t even mention actual proposed reforms of the Fed, such as Thomas Massie’s May 2024 legislation to abolish the Fed. One would think that a survey of GOP views on the Fed might warrant a mention in passing. The omission, of course, is what we’ve come to expect from reporters in the legacy corporate media which only mention “respectable” opinions of the governing class. Views outside the window of regime-approved opinion are unlikely to get a mention. Nor can this be explained away by claims that Massie’s legislation has very little chance of passage. Massie’s legislation is about as likely to pass as is a law mandating the Fed use the Taylor Rule, which the Fed would fight with every ounce of its strength.
In practice, if there are going to be any true reforms to the Fed, they will have to be bottom-up with pressure applied by activists and voters from below. No one in the GOP leadership is going to do anything at all about true Fed reform until he fears that his re-election depends on it.
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