Big change is coming to the Fed
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Illustration: Aïda Amer/Axios
So much attention has focused on the will-he-or-won't-he question of whether President Trump will try to fire the Federal Reserve chair that it's easy to overlook a deeper reality: Major change is coming to America's central bank either way.
The big picture: Trump allies' recent criticism of the Fed goes far beyond the details of the current interest rate setting or the cost of its building renovations. It's wider-ranging, suggesting that the entire 111-year-old enterprise needs a fundamental overhaul.
- It includes distrust of the Fed's legions of Ph.D. economists and its sprawling nature, including 12 reserve banks and a cumulative 24,000 employees.
- Signs of change are already in the air and will surely accelerate when a new chair takes office, whether that turns out to be next week or when Jerome Powell's term ends in 10 months.
What they're saying: "What we need to do is examine the entire Federal Reserve institution and whether they have been successful," Treasury Secretary Scott Bessent said in a CNBC interview Monday. "All these Ph.D.s over there, I don't know what they do."
- "Significant mission creep and institutional growth have taken the Fed into areas that potentially jeopardize the independence of its core monetary policy mission," Bessent said Monday on X.
- "We need regime change in the conduct of policy," Kevin Warsh, a former Fed governor and a candidate to be its next leader, said last week.
Between the lines: The outlines of the kinds of changes Trump's Fed appointee will likely pursue are becoming clear.
- Look for closer coordination with the Treasury Department. Warsh described a scenario where the "Fed chair and the Treasury secretary can describe to markets plainly and with deliberation" their plans for the Fed's multitrillion-dollar balance sheet.
- Anticipate major cutbacks in the Fed's staffing and spending; the kerfuffle over its headquarters renovation is just the tip of the spear in what many Trump allies view as wildly excessive spending. (This paper from former Fed economist Andrew Levin in March makes the case.)
- Expect a more pugnacious tone and more frequent TV appearances from Fed leadership, as is the style of Trump appointees across the government. Traditionally, Fed officials have been press-shy.
Early signs of these shifts are evident in Tuesday's conference on bank capital, with several aspects that defy Fed customs and norms.
- Bessent delivered the keynote address Monday night.
- Trump-appointed vice chair for supervision Michelle Bowman gave an interview to CNBC on Tuesday morning — her first time on the network despite having been a Fed governor for seven years.
- Her appearance is during the central bank's "blackout period" before meetings at which monetary policy and macroeconomics are not to be discussed publicly. (She did not discuss those topics.)
- This afternoon, Bowman will interview OpenAI CEO Sam Altman — a buzzy attraction, but not the normal fare for a conference on bank capital.
Reality check: For all Trump's dissatisfaction with the Fed, the unemployment rate is currently 4.1%, inflation is 2.7%, the U.S. government can borrow money for a decade at 4.34%, and the stock market is at all-time highs.
- The big risk of regime change is that you end up with a worse regime.
The bottom line: For decades, transitions of Fed leadership have been steady, cordial, no-rocking-the-boat affairs: Paul Volcker to Alan Greenspan to Ben Bernanke to Janet Yellen to Powell.
- Don't bet on the pattern continuing.
