Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—Brookings article sketches presidential candidates’ contrasting plans for the Fed, (Oct 23, 2024)

By Thomas G. Wolfe, J.D.

The authors note that while Kamala Harris “endorses more conventional respect” for Fed autonomy, Donald Trump “suggests central bankers should be more responsive to a president’s views about the appropriate level of interest rates.”

In their October 2024 Commentary article for the Brookings Institution, authors Sarah Binder, Naomi Maehr, Mark Spindel, and Audrey Wang discuss the U.S. presidential candidates’ “contrasting plans for the Federal Reserve.” The authors note that Vice President Kamala Harris “endorses more conventional respect” for the autonomy of the Federal Reserve system. In contrast, Former President Donald Trump suggests that “central bankers should be more responsive to a president’s views about the appropriate level of interest rates,” the authors communicate.

The Brookings Institution refers to itself as nonprofit organization whose mission is to “conduct in-depth, nonpartisan research to improve policy and governance at local, national, and global levels.”

2024 election backdrop. The Brookings article observes that even as inflation subsides and the Federal Reserve has cut rates, “Republicans blame Vice President Harris and the Democrats for lingering high prices.” The authors maintain that “presidents and lawmakers do not set interest rates, making the Fed an attractive target for both parties seeking to deflect voters’ blame.” Further, the article states that neither the Republican party platform nor the Democratic party platform mentions the U.S. central bank or “details views about how the Fed should go about setting interest rates.” At the same time, both presidential nominees have “revealed their stance on this critical economic issue.”

Donald Trump. Reviewing Donald Trump’s approach when he occupied the White House, the authors state that Trump “pressured” the Federal Reserve and Fed Chair Jerome Powell “to lower interest rates, foreshadowing how he might approach the Fed in a second term.” The authors convey that the former president recently said that if he should return to the presidency once again, he “should have a say over the Fed’s interest rate decisions.” According to the authors, economists warn that such a move “could lead to lower than appropriate rates and reignite harmful inflation.” In addition, news reports suggest that Donald Trump’s advisors “have proposed a broader array of reforms that would chip away at the Fed’s monetary autonomy,” the article states.

Kamala Harris. Meanwhile, the Democratic Party platform has been “silent on monetary policy,” the authors say. Most economic fixes recommended by the Democrats focus instead on “fiscal policy and regulation.” While Democrats emphasize “a commitment to finishing the job to tame inflation,” the party’s platform “does not mention the Fed’s role in keeping prices low and stable,” the authors explain.

Still, Vice President Kamala Harris has publicly endorsed a more conventional stance on the authority of the Fed. For instance, the authors point to a remark made by Harris this past summer: “The Fed is an independent entity and as president I would never interfere in the decisions that the Fed makes.”

Road ahead. The authors speculate that, if she were elected president in November 2024, Harris would likely follow in President Joe Biden’s footsteps—that is to say, Harris “might occasionally signal more-dovish views about interest rates but would be unlikely to browbeat the Fed for persistently lower rates.” In contrast, the authors posit, “Expect no such reticence from a President Trump.”

Notably, the authors point out that the next president will have to reappoint or replace Federal Reserve Chair Jerome Powell before his term ends in 2026.

Companies: Brookings Institution

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