Granting the President Power Over the Fed is a Recipe for Disaster

In an August 28 interview for USA Today, Vice President JD Vance advanced the troubling idea that the White House should have a bigger say over monetary policy and the Federal Reserve. On behalf of the administration, he argued that monetary policy is too important of an issue to leave to “bureaucrats sitting from up high […] without any input from the American people.” These comments demonstrate a disturbing hostility—present since President Trump’s first term—against the independence of the Federal Reserve. For the sake of millions of taxpayers and consumers, the Fed should be bound by a rules-based order and not the whims of the Oval Office.

There is validity to some of the administration’s concerns over the role and power the Fed has in the American economy. The poorly understood institution can quickly reshape the market through interest rates, reserve ratios, and other financial regulations. However, any solutions should aim to scale down that power or curtail the discretionary power of Fed governors, not concentrate those powers under White House control.

The economic literature overwhelmingly supports the idea that independent central banks are more successful in keeping inflation in check and granting price stability for consumers than politically-run systems. Economists Paul Tucker and George Selgin have demonstrated that Federal Reserve independence is preferrable because politicians, especially presidents, often benefit from lower interest rates. In the short term, lower rates allow consumers to more easily go into debt to spend more, lower mortgage costs, and embolden investors to take more risks leveraged on the low price of debt. That bolstered economic environment usually translates into more votes for an election right around the corner. Additionally, when rates are low, the government can accrue debt at a lower cost and pay it off more easily. The major drawback, inflation, tends to lag behind and usually doesn’t manifest until years later—after many politicians have retired. Thus, central banks that are more vulnerable to near-term political pressure have a harder time keeping inflation low.

Granting the presidency more power over interest rates and monetary policy would be a recipe for disaster. It would grant presidents unprecedented power to massively distort markets at their whim. As is evident with tariffs, granting executives such levels of unchecked, unilateral power is costly for businesses and consumers.

There are legitimate reasons to advocate for Fed reform. For example, well thought-out proposals would bound Fed decision-making to more distinctive, clear goals, such as nominal gross domestic product targeting. This and similar rules-based reforms would curtail the largely discretionary power that Fed governors hold, making for a more predictable and transparent institution. Other proposals would limit the Fed’s overly broad and ever-expanding regulatory power. But letting the President absorb the Fed’s functions or dictate its decision-making process would amplify the Fed’s flaws, subjecting monetary policy to the volatile, largely discretionary decisions of the current presidential administration. Rather than yielding to the White House, policymakers should design a rules-based regime that would shield Americans from runaway inflation and guarantee sound money. The fate of the American—and global—economic order depends on a new and better approach.