Federal Reserve Turmoil

The Federal Reserve is the central bank of the United States, created by the Federal Reserve Act of 1913 to regulate the economy and financial system across the nation. It supervises and conducts the nation’s monetary policy, financial institutions, payment systems, consumer protection, and community development.

A key aspect of the reserve is its role as an independent government agency that can manage monetary policies—actions by the bank to manage economic goals such as inflation and prices—without direct approval from Congress or the President. The reserve does remain accountable through extensive reports accessible to the public, as well as testifying before Congress.

Recent news developments have raised questions on the future of the Federal Reserve after repeated attempts from President Trump to exert more control over the institution. The president moved to fire Lisa Cook, a member of the Federal Reserve Board of Governors, citing allegations that she falsified bank documents to acquire more favorable loan terms. Although past presidents have placed pressure on the Federal Reserve over monetary policy, Trump is the first president to attempt to remove a member of its Board of Governors. Federal law says that they serve 14-year terms unless sooner removed for cause by the President.

Complicating the case is the situation involving Jerome Powell, the Chair of the Federal Reserve of the United States. Federal prosecutors have opened a criminal investigation and served the reserve with subpoenas. The Justice Department is investigating allegations Powell misled Congress during his testimony about rising costs for renovations to Federal Reserve buildings. This follows a long-lasting feud between Powell and Trump. Powell says he believes the investigation was a result of the Federal Reserve’s refusal to cut interest rates despite repeated public pressure from the president.

The timing of these two unprecedented moves has led to suggestions the administration is attempting to oust Cook and Powell off the board, as a way to gain more control over the board and thus the Federal Reserve as a whole. The Supreme Court will decide on January 21st about the validity of Trump’s attempt to fire Lisa Cook, which will weigh the independence of the Federal Reserve against presidential power.