There is ongoing concern of a threat by the Executive Branch to the independence of the Federal Reserve System, specifically influence by the Executive Office of the President on the decisions made by the Federal Open Market Committee on monetary policy.
I do not think the issue is political threats to the independence of the Federal Open Market Committee. The FOMC and the Federal Reserve System overall have never been independent of political influence. The Federal Reserve System was birthed out of a collaboration between bankers and elected officials. The mandate of the Federal Reserve System is codified in 12 USC 225(a) where the goals of the Federal Reserve System include stable prices, maximum employment, and moderate long-term interest rates.
By statute, the chairman of the Board of Governors of the Federal Reserve System delivers a semi-annual report to both chambers of Congress explaining the status of the nation’s monetary policy.
Let’s not forget that monetary policy starts in Article I, Section 8 of the US Constitution. Pursuant to this section, Congress is responsible for the coinage and regulation of money. When the Congress passed the Federal Reserve Act thereby creating the Federal Reserve System, the Federal Reserve became a creature of Congress. As a spawn of the Congress, the Fed became a political body.
Should we expect that any influence the president has on the Federal Reserve ends with her duty to nominate members, including the chairman, to the Board? I do not believe so. For example, under the Humphrey-Hawkins Act, the Board of Governors, the Congress, and the Treasury are required to coordinate their activities in support of the American economy. Should we not expect that while they are coordinating that there would be an exchange of influence among these parties? Should we not expect the Federal Reserve to have its energy tainted when occupying the same room with two political agents?
Traders should pay attention to whether the degree of influence by the Executive and Legislative Branches has been turned up. Who is the President nominating to the Board of Governors? Is Congress considering legislation that limits or expands participation by the President in decisions made by the FOMC?
The political stove is always lit. The question is, how high is the flame?
As we draw closer to May 2026, any rhetoric about removing Jerome Powell from his Board chairmanship becomes moot. Such continued attempts would also be disruptive to money markets where such disruption may backfire on the President and his party.
In short, ignore the noise.
Alton Drew
18 August 2025
To consult on legal or policy risks surrounding your trade, contact me at altondrew@altondrew.com.
DISCLAIMER: The above post is not provided as trading or legal advice. It is for information purposes only. Trading is risky. Consult a professional and registered trading advisor before embarking on your trading journey.
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