The complexities surrounding the Federal Reserve’s activities become even more pronounced in times of crisis when its actions don’t fit neatly into the categories of monetary or regulatory roles, according to Ms. Judge. Take, for instance, the economic turmoil caused by Covid-19 in 2020. During this period, the central bank took assertive steps across various debt markets to stabilize the financial system, working hand in hand with the Treasury Department.
“The boundaries defining what exactly constitutes monetary policy have always been somewhat blurred,” Judge remarked.
Turning to insights from Jeremy Kress, a former banking regulator with the Fed and now leading the University of Michigan’s Center on Finance, Law and Policy, he pointed out that there wasn’t a clear-cut justification for why the Fed’s monetary independence was safeguarded while its oversight and regulatory roles weren’t. This ambiguity paves the way for potential shifts in directives by figures like Mr. Trump.
“They just arbitrarily decide what’s included and what’s not without any legal reasoning, which undoubtedly raises concerns,” Kress noted. “Jay Powell should be on alert because if Powell makes moves Trump disapproves of, the next executive order might target monetary policy itself.”
Moreover, Mr. Alvarez, who previously served as general counsel, cautioned that the directive’s current wording might inadvertently undermine the Fed’s autonomy in monetary matters. One of his concerns highlights the expansive authority granted to Russell T. Vought, the director of the Office of Management and Budget, to review and possibly alter the budgets of independent agencies. Such power could prove detrimental, especially if the President found displeasure with spending directed toward analysts or other key staff.
“While they’re not directly dictating how monetary policy should be executed, they’re subtly influencing it by constraining the resources and information essential for sound decision-making,” Alvarez explained.
“The directive’s phrasing creates opportunities for mischief if someone chose to exploit them,” he added.
