New York Federal Reserve President John Williams said in a politically charged statement on Friday (5/3) that the US central bank needs independence from the White House in order to return inflation to its 2% target.
The election cycle threatens the independence of monetary policy as pressure mounts for interest rate cuts to ease lending conditions. The New York Fed president’s comments also come after reports that Donald Trump is considering a new legal arsenal to increase the White House’s influence over the central bank
“To bring inflation under control, central banks must be held accountable for keeping inflation consistently low and have the independence of action to achieve that goal,” Williams said, in remarks at the Monetary Policy Conference – Hoover at Stanford University.
To try to minimize political pressure, Congress allowed the seven governors on the Fed’s Washington board to serve 14-year terms. The Fed’s 12 regional bank presidents are chosen without any interference from Congress.
Donald Trump’s plan to limit the independence of the FED
Donald Trump and his advisers are discussing measures to try to limit the Fed’s independence, including giving the president a say in the Fed’s interest rate decisions. Observers do not believe Trump’s nascent effort to oust Fed Chairman Jerome Powell will succeed and could destabilize monetary policy and the artificially strong dollar.
Legally, it is unconstitutional. Monetary policy is the business of Congress, not the president. Neither Congress nor the courts are going to permit or encourage any president to violate the clear constitutional limits of his office.
On a practical and political level, the candidate and former president will likely very quickly withdraw any plan to control the Fed.
Asked why the Fed has not released a report on how inflation managed to rise above 7% during the pandemic, even though the Fed had a 2% target, Williams replied that the US central bank wanted to bring back inflation within the target before making assumptions of what has been taught.
