If I had to choose between the rule of law and the law of the rulers, I would choose the former every time. That is true even if I agree with the ideology of the people currently in transition. That is why I have consistently opposed ‘courts’, regardless of which party is in power at the time.
A little-known aspect of the Fed’s rules is that the interest rate on bank reserves is technically set by the seven-member Federal Reserve Board (not the 12-member FOMC). The president appoints the members of the Reserve Board, but not the five reserve bank presidents who are also members of the FOMC.
In practice, the FOMC has a kind of “gentleman’s agreement” to allow all twelve members to vote on where to establish the IOR, as this has become the main tool of policy makers, but technically only the members of the Reserve Board have a vote . Ben Steil has an article in Barron’s discussing how President Trump could use this loophole to reform the Federal Reserve:
Section 505 of former Senator Richard Shelby (R., Ala.)’s draft Financial Regulatory Improvement Act of 2015 would have transferred the authority to set interest rates on reserves to the FOMC, and therefore would have restricted the full committee’s ability to short-term interest rates have recovered generally. Ironically, it was Democrats who objected to the law, on the grounds that the Reserve Bank governors who served on the FOMC were quasi-private appointments. But unless and until such a law is passed, the board, not the FOMC, will have the effective power to control rates.
This is where President Trump comes into the picture.
The most important way for him to control both the Board of Directors and the FOMC remains to replace Chairman Powell – if that is possible. But it’s not the only way. Two appointees from Trump’s first term remain on the board: Christopher Waller and Michelle Bowman. Incoming vice president J.D. Vance Bowman recently quoted positively. She is widely mentioned as successor to Democratic appointee Michael Barr as vice chairman for oversight when his term (as vice chairman, but not as governor) ends in July 2026. Democratic appointee Adriana Kugler’s term expires in January 2026, at which point Trump could replace her with a loyalist. Should Waller and Democratic appointees Barr, Philip Jefferson and Lisa Cook decide to pursue other opportunities before their terms expire, Trump would have even more room to control the council and its power over tariffs.
Democrats have been reluctant to give more power to regional bank governors because that group has tended at times to be more aggressive 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 to your liking if that branch of government is controlled by the opposition party.
Another example is worth thinking about. Congress gave the president broad discretion in setting tariffs at a time when the president (in both parties) tended to be more supportive of free trade than Congress. They probably never imagined that a future president would use that power to implement a dramatic increase in tariffs. Here is the Yeutter Institute:
While the U.S. Constitution gives Congress the power to impose tariffs on goods, over time Congress has delegated some of that power to the executive branch. The United States Constitution states in Article I, Section 8: “The Congress shall have Power to lay and collect Taxes, Imposts, Imposts, and Excises.” Congress passed blanket tariff legislation until the early 1930s. However, in an effort to give the president more flexibility to revive global trade in the midst of the Great Depression, Congress gave the executive branch the power to negotiate tariff reductions within levels pre-approved by Congress through the Reciprocal Trade Agreement Act of 1934. President Franklin D. Roosevelt became the first president with the authority to impose tariffs and negotiate bilateral trade agreements without the approval of Congress.
There’s a reason the framers gave Congress the power to set tax rates and rates.
(0 COMMENTS)