If I had to choose between the rule of law and the law of the ruler, I would always choose the former. That is true even if I happen to agree with the ideology of those currently changing. Therefore, I have consistently opposed “court-packing,” regardless of which party is in power at the time.
One of the lesser-known aspects of the Fed rules is that interest rates on bank reserves are technically set by the seven-member Federal Reserve Board (not the 12-member FOMC). is. The president appoints the members of the Reserve Board, but not the five Reserve Bank governors who also serve on the FOMC.
In reality, the FOMC has a kind of “gentleman’s agreement” in which all 12 directors can vote on where to set the IOR, making it an important tool for policymakers, but strictly speaking: Only reserve board members have voting rights. Ben Still has an article in Barron’s discussing how President Trump could use the loophole to restructure the Federal Reserve.
Former Sen. Richard Shelby’s (R-Ala.) draft of Section 505’s Financial Regulatory Improvement Act of 2015 would transfer the authority to set reserve interest rates to the FOMC, and thus all committees that control short-term interest rates in general. will restore his abilities. Ironically, it was Democrats who opposed the bill because the Reserve Bank president, who serves on the FOMC, is a quasi-private appointment. But unless and until such legislation is passed, the Board, not the FOMC, will effectively have the power to control interest rates.
This is where President Trump comes in.
His most important way to control both the board and the FOMC remains to replace Chairman Powell, if that is possible. But that’s not the only way. Christopher Waller and Michelle Bowman, who were appointed during President Trump’s first term, remain on the board. Vice President-elect J.D. Vance recently spoke favorably of Bowman. She is widely mentioned as the vice chair for oversight when Democratic appointee Michael Barr’s term (as vice chair, but not governor) expires in July 2026. Democratic appointee Adriana Coogler’s term expires in January 2026, after which Trump could replace her. She’s with the loyalists. If Mr. Waller and Democratic appointees Burr, Philip Jefferson and Lisa Cook decide to pursue other opportunities before their terms on the board expire, Mr. Trump will lose control over the board and its interest rates. There will be more room for control.
Democrats have been reluctant to give more power to local bank presidents because they tend to be slightly more hawkish than Reserve Board members. . But be careful what you wish for. If you give more power to a subgroup that is more directly controlled by the executive branch, the results may not be in your favor if that agency is controlled by the opposition party.
Another example is worth considering. While presidents (of both parties) tended to be more pro-free trade than Congress, Congress gave the president wide discretion in setting tariffs. They probably never imagined that a future president might use that authority to enact dramatic increases in tariff rates. The Yetter Institute is:
The U.S. Constitution gives Congress the power to impose tariffs on goods, but Congress has delegated some of that power to the executive branch. The U.S. Constitution provides in Article I, Section 8, “Congress shall have power to levy taxes, duties, imposts, and excises.” Congress passed general tariff laws until the early 1930s. However, in a move that would give the president more flexibility to stimulate world trade in the midst of the Great Depression, Congress reduced tariffs within levels previously approved by Congress through the Reciprocal Trade Agreements Act of 1934. gave the executive branch the authority to negotiate. President Franklin D. Roosevelt became the first president to have the power to impose tariffs and negotiate bilateral trade agreements without Congressional approval.
There’s a reason the Framers gave Congress the power to set taxes and tariffs.
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