Reform The Fed?

In a recent Politico story, finance reporter Victoria Guida examines the prospects for meaningful reform to rein in the Federal Reserve’s expanding powers beyond its historical remit.

Unfortunately, the prospects appear bleak.

For one, President-elect Trump has no interest in reducing the Fed’s influence. As president, he has consistently advocated for lower interest rates, favoring a more activist Fed that intervenes more frequently in markets. While he criticized the Fed for keeping interest rates too low before taking office, this stance quickly vanished after his inauguration.

Trump seems antagonistic toward Powell due to his perceived restrictive monetary policy stance. Ironically, Powell has gained a reputation in some Washington circles, including Trump’s, as a hard-money advocate, which is not what Trump desires.

In essence, Trump’s occasional expressions of annoyance with the Fed have no bearing on any substantial policy changes. This puts him at odds with even the timid inflation hawks within the GOP at present. As Guida aptly puts it:

You might assume that the election of a president who has spent years criticizing the central bank would provide an opportunity for Republican ideas to reform the Federal Reserve.

However, you would be mistaken. Donald Trump and conservative Fed reformers have vastly different visions.

Therefore, we have virtually no reason to expect significant Fed reforms from Trump. However, the “conservative Fed reformers,” as Guida calls them, are not advocating for much beyond cosmetic changes.

These alleged reformers, as Guida portrays them, seem to have a vague fondness for the Taylor Rule. However, as we’ve demonstrated here, it’s a rather flexible “rule” that hardly qualifies as true “reform.”

Even more concerning, the conservatives Guida labels as relatively hard-money individuals differ from Trump primarily in their preference for maintaining the status quo. For instance, Guida quotes Sen. Mike Rounds (R-S.D.) as saying, “I like the way it’s set up right now,” when asked if Trump should have more influence in monetary policy decisions.

Rep. Frank Lucas (R-Okla.), who sits on the House Financial Services Committee, also expressed his support for the current system, stating, “The 1913 Act has worked really well. If there are suggestions from the new administration, we’ll certainly consider them on the committee, but a certain degree of independence is essential.”

Rep. Bryan Steil (R-Wisc.) further argued that the current Fed’s actions on interest rates are merely a reaction to the negative economic policies of the Biden administration. He asserted, “As we reduce inflation, the Fed’s actions will naturally lead to lower interest rates. This is the best approach for achieving that goal.”

In essence, according to the GOP “reformers,” the current economic situation is satisfactory, and there’s no need for significant changes.

It’s noteworthy, however, that Guida doesn’t even mention any actual proposed reforms of the Fed, such as Thomas Massie’s May 2024 legislation to abolish the Fed. One would expect that a survey of GOP views on the Fed would at least mention such a significant proposal. Of course, the omission is what we’ve come to expect from reporters in the legacy corporate media, which only highlights “respectable” opinions of the governing class.

Views outside the regime-approved opinion are unlikely to receive any attention. Nor can this be explained by claims that Massie’s legislation has little chance of passing. Massie’s legislation is about as likely to pass as a law mandating the Fed use the Taylor Rule, which the Fed would fiercely oppose.

In reality, if there are going to be any genuine reforms to the Fed, they will have to emerge from the bottom up, driven by pressure from activists and voters.

No one in the GOP leadership is going to take any action on true Fed reform until they fear that their re-election depends on it.