The US Treasury Secretary stated during a congressional hearing on Wednesday that the President has the authority to exert influence over the Federal Reserve's decision-making process, remarks that have once again sparked external concerns about the independence of the Fed's monetary policy. Appearing before the House Financial Services Committee, the Secretary was asked by Democratic Representative Emanuel Cleaver of Missouri whether he would advise the President to "intervene, rhetorically and politically" in the Fed's decisions. The Secretary responded, "That is his right... as it is the right of everyone in this room," clearly implying that members of Congress also have the right to express positions on central bank policy. Despite this, he simultaneously emphasized his belief that the Fed should maintain its monetary policy independence, an independence built on the trust of the American public and which should be subject to accountability. His comments drew significant attention, with the Federal Reserve declining to comment on the matter.
Over the past year, the US President has consistently pressured the Federal Reserve to lower benchmark interest rates. The former President also attempted to remove Federal Reserve Governor Cook from office, citing allegations of mortgage fraud, which Cook has denied. Currently, the US Department of Justice is also investigating circumstances related to Fed Chair Powell's testimony last year before the Senate regarding the renovation costs of the Federal Reserve headquarters. Powell has previously stated that threats of criminal charges are a consequence of the Fed's refusal to yield to political pressure. Several economists have warned that any erosion of the Fed's independence would undermine market confidence in the US economy and financial system.
During the hearing, Democratic Representative Ritchie Torres of New York further pressed the issue, asking whether the President could remove the Fed Chair or board members due to policy disagreements. The Treasury Secretary stated he had "no opinion" on this matter. The Secretary also pointed out that there are differing views within the former administration regarding whether the "unitary executive theory" applies to the Federal Reserve. This theory posits that the powers granted to the executive branch by Article II of the US Constitution belong solely to the President. The Secretary remarked, "We'll just have to see what the Supreme Court says," noting that the Court has not yet ruled on the former President's attempt to dismiss Cook.
The independence of the Federal Reserve has long been considered a cornerstone of the US financial system, with its institutional foundations tracing back to the Federal Reserve Act of 1913. Powell stated last week that he does not believe the Fed has lost its independence, nor does he believe it will in the future, emphasizing that the system was designed to insulate monetary policy from the control of "directly elected officials." Notably, the Treasury Secretary had previously stated that the President would not interfere with the Fed's independence, but on Wednesday he reversed this position, claiming the Fed had "inflicted significant hardship on American workers" on inflation, thereby losing public trust, and he mentioned "cost overruns" in the Fed headquarters renovation project.
Powell, in contrast, has emphasized the Fed's steadfast commitment to its mission of maintaining price stability and defended the massive $2.5 billion renovation project, stating that the nearly century-old building requires expensive structural repairs and that the project is overseen by an independent inspector general. Furthermore, the Treasury Secretary also addressed the US dollar during the hearing. The US Dollar Index fell by over 9% last year. He told Republican Representative Bill Foster of Illinois, "We consistently support a strong dollar policy." However, this stance appears contradictory to the former President's expressed preference for a weaker dollar, which typically helps enhance the competitiveness of US exports.
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