U.S. Senator Elizabeth Warren has called on Federal Reserve Governor Christopher Waller to cease his efforts to reform the operational structure of the Fed's 12 regional banks.
As the lead Democrat on the Senate Banking Committee, Warren sent a letter to Waller on Wednesday, arguing that his proposed reform of the Federal Reserve System may conflict with federal law and could undermine the central bank's independence. Although Waller, as chair of the Fed board's Committee on Federal Reserve Bank Affairs, holds certain supervisory authority, the regional banks were established with a high degree of autonomy and control over their own day-to-day operations.
"This proposal appears not to be a serious effort to reform the Federal Reserve System, but rather a thinly veiled attempt to curry favor with former President Trump, who is seeking greater control over regional bank presidents," Warren wrote in the letter. "I urge you to immediately halt all work on this proposal and provide Congress with more information."
A Federal Reserve spokesperson confirmed receipt of the letter but declined to comment further.
In two speeches earlier this spring, Waller outlined a vision to consolidate back-office functions such as human resources and information technology across the regional banks. He also stated that leaders of the regional banks had agreed on a framework to achieve this goal.
Officials and staff within the Federal Reserve System are concerned that Waller's reform efforts could ultimately shift power and decision-making authority from the regional banks to Washington, exposing the Fed to greater political pressure.
Former President Trump and his allies have consistently sought to increase their influence over the Fed. This includes Trump's attempt to dismiss Fed Governor Lisa Cook and the Justice Department's criminal investigation into former Chair Jerome Powell. Senior administration officials have also previously proposed ideas for reforming the regional banks. These developments have coincided with Trump's repeated calls for significantly lower interest rates, which the Fed has not implemented.
Conversely, as price pressures have re-emerged this year, many regional Fed presidents have signaled the possibility of interest rate hikes. Historically, regional reserve bank presidents have been more vigilant about inflation than the seven Fed governors based in Washington.
"Your effort to weaken their power appears to be part of his [Trump's] plan to bring them to heel," Warren wrote in the letter, adding that it is unlikely these regional banks would "spontaneously" develop a framework for this operational reform.
"Instead, it appears you may have directed the reserve bank presidents to implement your proposal," Warren stated. "If the Federal Reserve Board were to control all these functions, including the administrative structure involving the hiring and firing of staff, it would represent a significant weakening of the Fed's decentralized structure."
In her letter, Warren posed 14 questions, demanding that Waller provide more details about the reform framework and its development process, explain the potential impact of such centralization on the Fed System's staffing and other aspects, and clarify whether he has used the threat of withholding annual budget approvals to pressure uncooperative regional banks. She requested a response from Waller by July 16.
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