US Treasury Secretary Calls for Fed Reform, Cites "Mission Creep"

US Treasury Secretary Advocates for Drastic Fed Overhaul

The U.S. Treasury Secretary has called for a comprehensive overhaul of the Federal Reserve, arguing that the central bank is suffering from both "mission creep" and "institutional bloat." In a sharply worded op-ed published in The Wall Street Journal, the Secretary likened the Fed to a "lethal virus that escaped the lab," arguing that it must be "put back in its cage."

This call comes as the Trump administration attempts to exert control over the Fed's Board of Governors by "claiming presidential authority to fire Fed governors." This follows months of President pressuring the Fed Chair to cut interest rates, and the subsequent firing of a Fed governor on grounds of "suspected mortgage fraud." The fired governor has filed a lawsuit to block the dismissal.

Should the governor be forced out and the President's economic advisor be confirmed by the Senate, Trump nominees would hold a four-to-seven majority on the Fed’s Board of Governors – meaning they could push through sweeping changes in interest rate policy and bank regulation, also calling into question "whether the Fed is independent of the White House.""

Analysts say the Secretary's article aims to provide a rationale for "taking control of the Fed." The proposed reforms aim to refocus the Fed on its core mandate of maintaining price stability, low unemployment, and moderate interest rates. This includes stripping the Fed of its regulatory authority over U.S. banks.

Debates Surrounding Fed Independence

The expansion of the Fed’s influence has raised concerns about its independence. Some argue that the central bank’s interventions in the economy, particularly since the 2008 financial crisis, have extended its reach into areas traditionally belonging to fiscal administration. This has blurred the lines between monetary and fiscal policy, raising questions about whether the Fed’s decisions are influenced by the government’s fiscal needs.

Proposed Reforms and Realignments

Proposed reforms include reallocating regulatory responsibilities, focusing the Fed on macroeconomic monitoring, lender-of-last-resort liquidity support, and monetary policy setting. Proponents argue that this approach would rebuild specialized expertise and reduce potential conflicts of interest.

In conclusion, the call for Fed reform raises critical questions about the central bank’s role in the economy, its independence, and the impact of its decisions on equitable wealth distribution. While the specifics of the proposed reforms are still under debate, the underlying issue of ensuring the Fed serves the interests of all Americans remains paramount. The discussion highlights the ongoing tension between the Fed's need for independence and the desire for accountability in a democratic society.